A security is a tradable financial asset, but the full definition for what a financial security is depends on the country and jurisdiction. In the United States, a security is a tradable financial asset of any kind, which makes investment banking simpler. If you plan on starting a career that includes managing investment portfolios or trading securities, here’s what you need to know.
What is a Financial Security?
As stated, a security is any tradable financial asset, which falls under the umbrella of debt securities, equity securities, and derivatives. Securities are the traditional method that commercial enterprises use to raise capital and are seen as an attractive alternative to loans.
Securities are capital provided by investors who purchase the securities upon their initial issuance. The company or entity issuing the security is called the “issuer,” and they represent each security by a certificate or a “non-certificate” for online securities. Certificates can be bearer or registered, where bearer entitles the holder to rights as soon as the security is held and registered, where the holder is only given rights as long as they appear on the register.
Different Security Types Explained
Securities are typically divided into equities and debt, but derivatives are also important because they affect the debt and equity securities. You’ll need this knowledge extensively in your career.
Regardless of what security you specialize in, you’ll need a Financial Industry Regulatory Authority (FINRA) certificate to legally advise, trade, and handle stock portfolios. Licencing requirements change depending on your career focus, but this guide to FINRA license can help.
Equity
Shares and corporate stock, which fall under the “equity umbrella” are the most common securities held by individuals and companies. The holder of the equity is called a “shareholder” or fractional part of the issuer. Equity securities require regular payments (interest, a derivative) to the holder, but people who own equity shares aren’t entitled to any payment.
If the company files for bankruptcy, they share residual interest after debts were paid to creditors. The person/company with the largest shares is entitled to control the issuer, and regular shareholders may have voting rights. Equity shareholders enjoy the capital gain and profits of the company, or the “upside” of the company, but lose money if the business fails.
Debt
Bonds, deposits, debentures, commercial papers, and notes are common debt securities, but they become equitable under certain circumstances. Holders of debt securities are entitled to the payment of principal and interest and may be given the right to private information and contractual rights under specific terms. Debt securities are typically issued on a fixed term.
When the debt security matures, they become redeemable even if they’re unsecured, but most are protected by collateral. If a security is unsecured, they may also be placed as a “senior” to other unsecured debt, which gives the holder priority in a bankruptcy. However, you’ll commonly come across subordinated debt, which isn’t senior. The most common debt securities include:
- Corporate Bonds: Commercial or industrial debt.
- Government Bonds: Sovereign government debt and their agencies.
- Supranational Bonds: Municipal Bonds, or state, territorial, or provincial debt.
- Sub-Sovereign Government Bonds: International organization debt.
- Money Market Instruments: Short-term debt that acts similar to a deposit account.
- Euro Debt Securities: Includes Eurobonds and Euronotes available to U.S. markets.
There are securities that act as both debt and equity, like preference shares, convertibles, and equity warrants. Hybrid securities aren’t as common, but they can add versatility to portfolios.
Derivatives
A derivative in finance is a contract that derives its value from the overall performance of an underlying entity. Underlying entities include indexes, assets, and interest rates on debt and equity securities. Derivatives protect against proven movements (hedging), increase exposure to rising and falling rates, and give others access to hard-to-trade or expensive markets.
What Does it Take to Find a Job in Financial Securities?
Now that you have an idea of what securities are and how they play a part in finance, it’s time to consider what career you want to pursue in the financial security sector. When thinking about what to pursue, consider the demand of the position. Is there a positive growth rate, or is it stagnant? Also, think about whether you want to stay in this position for many years.
Financial jobs require distinct skills in vastly different work environments, so consider what you’re good at and how your personality will fit in this role. Someone with high leadership skills could be a great portfolio manager, while people who are good with numbers would love the investment analyst position. Finally, consider how long you want to spend in school.
Different Financial Security Careers Explained
Jobs in the financial sector are very lucrative, but they come at a price. Most financial security careers require extensive schooling, experience, and add-on certificates. All of the following positions require you to control, mandate, and advise the financial futures of your customers or clients, so it’s important for you to choose your future career wisely. Consider the following:
1. Investment Banker
Base Salary: $51k-$301k
Job Difficulty: Medium to Hard
Growth Rate: 10%
Education Requirements: 4-Year bachelor’s degree in economics, finance, or another degree in a business-focused field and Master’s in finance (preferably from an Ivy League school). You may require a Series 7 Certificate or a Chartered Financial Analyst (CFA) designation.
Description: Helps governments and companies raise money for stocks, bonds, venture capitalism, public offerings, and mergers and acquisitions (M&A). They may help a company organize initial public offerings, which is a collection of stocks offered to the public.
2. Private Equity Associate
Base Salary: $50k-$350k
Job Difficulty: Hard
Growth Rate: 5%
Education Requirements: 4-Year bachelor’s degree in economics, finance, or another degree in a business-focused field and Master’s in finance (preferably from an Ivy League school). You may require a Series 7 Certificate or a Chartered Financial Analyst (CFA) designation. At least two to three years of experience as an investment banker or an internship.
Description: Work closely with firm partners and principles on every step of the deal, including analytical modeling, reviewing CIMs, portfolio company monitoring, and fundraising.
3. Underwriter
Base Salary: $70k-$150k
Job Difficulty: Medium to Hard
Growth Rate: 6%
Education Requirements: 4-Year bachelor’s degree in economics, finance, mathematics, or another degree in a business-focused field and Master’s in finance.
Description: Review applications for insurance, loans, and securities to evaluate the risk that potential clients offer. Underwriters assess applications for public offerings from new companies and decide the best course of action with the public by carefully viewing their financial histories.
4. Merger and Acquisitions (M&A) Manager
Base Salary: $114k-$201k
Job Difficulty: Hard
Growth Rate: 7%
Education Requirements: 4-Year bachelor’s degree in economics, finance, or another degree in a business-focused field and Master’s in finance. FINRA licensure and industry certification.
Description: Companies that wish to take part in large-scale business transactions need an M&A Manager to oversee it. M&A managers must research opportunities for mergers or acquisitions, oversee staff and manager projects and financial planning.
5. Investment Analyst
Base Salary: $63k-$125k
Job Difficulty: Medium
Growth Rate: 16%
Education Requirements: 4-Year bachelor’s degree in finance or business and Master’s in finance or mathematics. Practical experience and CRA, CPA, and CIMA certificates are required.
Description: An investment analyst is tasked with researching markets and investment trends that help clients make financial decisions. Analysts research investment opportunities, help fund managers and analyze client securities to determine if they’re ready to sell.
6. Securities Trader
Base Salary: $45k-$251k
Job Difficulty: Hard
Growth Rate: 4%
Education Requirements: 4-Year bachelor’s degree in economics, finance, or business degree and FINRA licenses (Series 7 and Series 63).
Description: Security traders purchase, sell and trade securities to earn more money for their employers or clients. Traders buy stock under the guidance of portfolio managers and their knowledge of the market. Security traders are either sell-side traders (work for banks), buy-side trades (work for management firms), and hedge fund traders (focused on maximizing profits).
7. Stockbroker
Base Salary: $55k-$150k
Job Difficulty: Hard
Growth Rate: 6%
Education Requirements: 4-Year bachelor’s degree in economics, finance, or another degree in a business-focused field and Master’s in finance (preferably from an Ivy League school). Internships may be necessary in banks or other high-profile positions.
Description: Stockbrokers, or brokers, complete securities transactions with clients, which consists of purchasing and trading stock. Brokers oversee portfolios, determine when to buy or sell, help clients create financial goals, and maximize financial returns. Brokers will meet with clients regularly to discuss their portfolios and to advise them on the market.
8. Portfolio Manager
Base Salary: $55k-$173k
Job Difficulty: Hard
Growth Rate: 5%
Education Requirements: 4-Year bachelor’s degree in economics, finance, or business. Some positions require job-specific FINRA licenses and Chartered Financial Analyst designation.
Description: Taking care of a client’s financial portfolio and assets is the tip of the iceberg for portfolio managers. They are incredibly knowledgeable on investments and are capable of reviewing past trades to determine if they’re profitable. Portfolio managers evaluate potential new investments, risks and speak to clients regularly about their financial expectations.
Final Thoughts
Starting a career in financial securities takes a lot of work, patience, and schooling. In the end, you’ll have a broad knowledge base on how to track, manage, sell and buy securities and enough transferable skills to work in almost any bank or firm across America. Plus, your experience can help you improve your own finances when you apply money-based goals.
Have you thought about starting a career in financial securities? Which profession are you most attracted to? Despite the hefty amount of schooling involved, would you be willing to begin your long-term commitment towards your own financial security? Let us know in the comments.
