When money enters the world of "Wall Street," investing and the financial industry, the cash is converted into securities. But if finance isn't your second language, here are some basic definitions.
A security is a negotiable instrument representing monetary worth. There are two types of securities, debt securities such as bonds, and equity securities such as stocks. Securities are often issued in a certificate form but more common nowadays is electronic issuance.
The price of securities and commodities are determined as a function of its market as a whole, basically they are affected by supply and demand.
Commodities are just generic products, like gold. When a jeweler takes gold and crafts it into a necklace, it is no longer a commodity.
Securities and commodities go together hand in hand on the stock exchange. They both influence the rate of return for each other. One prime example of this relationship is in the movie "Trading Places." Mortimer and Randolph Duke are two rich, older men who make a small wager regarding the behavior of their coworker, Louis Winthorpe III. There plot is eventually unraveled and Louis thwarts their plan of making a ton of money on insider trading.
Mortimer and Randolph are anxiously awaiting the annual citrus reports that provide information on the orange crops for the future year. The orange crop is the commodity. When the information is finally released to the public, there is a frenzy of stock trading, not only for the commodity itself but for the companies who produce byproducts (like orange juice) affected by it. The trading of the securities is reflected in the trade of the stocks of the manufacturers.
