What are marketable securities?

Let’s look at the marketable securities definition. The term marketable securities refers to liquid financial securities, or assets, that can be easily traded for cash on major public exchanges, for example stocks, bonds and exchange-traded funds (ETFs).

Where have you heard about marketable securities?

If you buy and sell stocks, bonds and ETFs on exchanges such as the New York Stock Exchange (NYSE) or London Stock Exchange (LSE) through your investment account, you are trading marketable securities. You may also have seen references to marketable securities in the balance sheets of large companies when looking at their annual financial reports.

What do you need to know about marketable securities?

There are two main types of marketable securities: equities and debt. Equity securities include stocks, futures, options and ETFs, which investors trade to make a profit from capital gains. Debt securities include corporate and government bonds, which borrow money for a fixed term and typically pay the investor interest at regular intervals. Although bonds are fixed-term assets, for example 30-year Treasury Bills, they can be freely traded on exchanges at any time during the term.

Other marketable securities examples include unit trusts, derivatives and money market instruments.

By contrast, a non-marketable security is an illiquid financial asset that cannot be easily traded. Non-marketable securities are typically debt or fixed-income assets that are not bought and sold on major exchanges, but instead trade directly through an over-the-counter (OTC) market or private transaction.

Securities are regulated by laws that are enforced by stock exchanges and securities commissions, such as the Securities and Exchange Commission (SEC) in the US, to make sure markets remain orderly and free of fraud.

Marketable securities are often referred to as cash in company reports, even though they are not actually cash. This is because they can quickly be converted into cash as needed. Companies and wealthy individuals can use marketable securities as collateral to secure financing up to a certain proportion of their value, rather than selling the assets to raise cash. The disadvantage of this is if the value of the securities falls it may no longer cover the debt, which still needs to be repaid.

To take a current example from a company balance sheet, Google parent company Alphabet (GOOGL) reported marketable securities of $112.5bn (£85.4bn, €94.6bn) and non-marketable investments valued at $14.7bn under current assets as of September 30, 2020.

Alphabet’s marketable debt securities include government bonds, corporate debt securities, mortgage-backed and asset-backed securities. Its marketable equity securities are publicly traded stocks or funds measured at fair value based on quoted prices. Its non-marketable equity securities are investments in privately held companies without readily determinable market values.