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 for others to buy or sell.

BREAKING DOWN Digested Security

The illiquidity caused by digested securities poses a frequent problem in certain financial markets. This dilemma is particularly prevalent in the bond market, for example: Many bonds end up in the hands of investors who wish to hold them until maturity, collecting the interest from the coupon payments over the years. It is common for a particular bond issue to experience a steadily decline in trading volume, as the securities are gradually digested by buyers who intend never to sell them.

Digesting a security might be seen as the opposite of day-trading.