Non-Marketable Security: Definition, Examples, Vs. Marketable
Published: December 31, 2023
Learn about non-marketable security in finance, including its definition, examples, and how it differs from marketable securities.
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Understanding Non-Marketable Securities: Definition, Examples, Vs. Marketable
When it comes to managing your finances, it’s important to have a good grasp of the different types of securities available to you. One such category is non-marketable securities. But what exactly are they? How do they differ from marketable securities? In this blog post, we will delve into the world of non-marketable securities, exploring their definition, providing examples, and highlighting the differences between non-marketable and marketable securities.
- Non-marketable securities are financial instruments that cannot be easily bought or sold on public exchanges.
- Examples of non-marketable securities include savings bonds, certificates of deposit (CDs), and private placements.
Defining Non-Marketable Securities
Non-marketable securities are financial assets that cannot be easily and readily traded on public exchanges like the stock market. Unlike marketable securities, which are traded freely and have a market price determined by supply and demand, non-marketable securities are typically held by a specific group of investors and lack a liquid market.
One common example of a non-marketable security is a savings bond. These bonds are issued by the government and cannot be bought or sold on exchanges but can be redeemed at a later date, often with a predetermined interest rate. Certificates of deposit (CDs) are another example of a non-marketable security. They are time-restricted investments offered by banks with fixed interest rates and a specific maturity date.
Examples of Non-Marketable Securities
Let’s explore some additional examples of non-marketable securities:
- Private Placements: These are investments in which securities are sold directly to a select group of institutional investors or high net worth individuals. Private placements offer unique investment opportunities but are not available to the general public.
- Stock Options and Restricted Stock: These securities are typically granted to employees as part of their compensation packages. While they may become marketable in the future, at the time of issuance, they are non-marketable due to restrictions on their transferability.
- Mutual Fund Shares: Although mutual funds are considered marketable securities, there are certain types of mutual funds that have restrictions on redemption for a specified period, thus making them temporarily non-marketable.
Non-Marketable vs. Marketable Securities
The primary difference between non-marketable and marketable securities lies in their liquidity and tradability:
- Liquidity: Non-marketable securities lack liquidity compared to marketable securities. While marketable securities can be easily bought and sold on public exchanges, non-marketable securities often require a specific process or a limited group of buyers to transfer ownership.
- Pricing: Marketable securities have a price that fluctuates according to supply and demand in the market. Non-marketable securities typically do not have a publicly traded market price and may have a fixed interest rate or redemption value determined at issuance.
It’s essential to note that while non-marketable securities may lack the flexibility and liquidity of marketable securities, they often offer unique benefits, such as lower risk and higher returns. However, it’s crucial to consider your financial goals and risk tolerance before investing in non-marketable securities.
Now that you have a better understanding of non-marketable securities, you can make informed decisions when it comes to managing your investments. Remember to consult with a financial advisor or conduct thorough research before venturing into any investment opportunity.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always consult with a qualified professional before making any financial decisions.