Marketable Security

A marketable security is any equity or debt instrument readily salable and can be converted into cash or exchanged with ease. Stocks, bonds, short-term commercial paper and certificates of deposit (CDs) are all considered marketable securities because there is a public demand for them and they can be readily converted into cash.

While shares in private corporations are illiquid, marketable securities can be converted to cash with great ease. Shares of IBM and government bonds are examples of marketable securities. Marketable securities provide investors with the liquidity of cash and the ability to earn a return when the assets are not being used.

For a security to be considered marketable, it must come with the option to be quickly sold on the secondary market, in significant quantities, for cash. Generally, these securities are bought and sold with great frequency, which helps classify them as highly liquid, and may belong to any industry. For bonds to fall in this category, the associated maturity date must be at least one year out.

Part of what drives liquidity in the secondary market is governed by standard supply and demand. If a particular security becomes highly desirable, due to a major product development advancement or significant favorable press, the value of the security goes up. As the desire for the security rises, the number of available securities remains the same, making it easier to achieve both higher selling prices and quick sales.

By definition, notes and coins qualify as marketable securities. Money can be stored in savings and checking accounts, which allows it to be accessed quickly with limited effort. Certain forms of money market accounts and Treasury bills also qualify. Stocks sold first on the primary market are generally considered marketable, though they are higher risk as they are subject to sudden market changes that can alter their price or worth significantly on the secondary market.

Unmarketable securities can be any security not highly desirable in the secondary market. This can include items with limited returns, such as certain low-yield Treasuries, U.S. savings bonds and other mechanisms that qualify as debt securities. Unmarketable securities often provide a stable place for funds to reside but offer little in terms of interest or yield. Overall, these investments are considered low risk, which also relates to the overall low yield, but can provide a steady source of monthly income, such as with the purchase of a 10-year Treasury bond.