DEFINITION of 'Digested Security'

A digested security is a financial instrument which an investor has bought and intends to hold for a long period of time. The security is thus effectively taken out of trading. If a large number of investors choose to digest a particular security, then it can result in a relatively illiquid market for that security, making it difficult to buy or sell.

BREAKING DOWN 'Digested Security'

The illiquidity caused by digested securities poses a frequent problem in certain markets. This dilemma is particularly prevalent in the bond market, for example, where many bonds end up in the hands of investors who wish to hold them until maturity. It is common for a particular bond issue to experience a steadily decline in trading volume, as the securities are gradually digested by investors who wish to hold them to maturity.

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