What is a Marketable Security?
A marketable security is any equity or debt instrument that can be converted into cash with ease. Stocks, bonds, short-term commercial paper and certificates of deposit (CDs) are all considered marketable securities because there is a public demand for them and they can be readily converted into cash.
Understanding Marketable Securities
Marketable securities refers to assets that can be sold within a short period of time, generally through a quoted public market. Obviously bonds and stocks that are publicly traded fit this bill. Marketable securities provide investors with a liquidity comparable to cash along with the ability to earn a return when the assets are not being used. In contrast, shares in private corporations are illiquid, and are not considered marketable securities because they are more difficult to value and sell, generally taking much longer to convert to cash than publicly traded stocks.
Marketable Securities and Investor Demand
Part of what drives liquidity in the secondary market is governed by standard supply and demand. If a particular security becomes highly desirable, due to a major product development advancement or favorable press, the value of the security goes up. As the desire for the security rises, the number of available securities remains the same, making it easier to achieve both higher selling prices and quick sales.
However, the ability to profit is not a condition of a marketable security. As long as you can sell it, it is considered marketable. Most stocks on major exchanges can be unloaded even in a falling market. On smaller exchanges or the OTC markets, there are many stocks that can require a longer period of time to unload in a thin market.
Marketable Securities and the Balance Sheet
In accounting terms, marketable securities are assets that can be converted into cash within the year. These assets are considered current assets and are lumped in with cash reserves for the purpose of ratios like the quick ratio. Any assets that likely can't be converted to cash or are intended to be locked up longer will be reported as non-current assets.
Unmarketable securities can be any security that is not highly desirable in the secondary market. This can include items with limited returns, such as certain low-yield Treasuries, U.S. savings bonds and other mechanisms that qualify as debt securities. Unmarketable securities often provide a stable place for funds to reside but offer little in terms of interest or yield. Overall, these investments are considered low risk, which also relates to the overall low yield, but can provide a steady source of monthly income.