Posted in Finance, Accounting and Economics Terms, Total Reads: 96
Definition: Digested Security
Digested Security is a security which has not been traded much in the market and making the movement of security in the market to standstill with the belief of the investors of having a long position for that security. This makes it illiquid as its movement is very limited in the market.
This makes both the market as well as security non-volatile and not much movement is seen in their prices and volume of transaction also reduces. If such a trend is followed by large number of investors it can freeze the whole exchange market and can make it lose its liquidity.
Here the investors looking to sell in long positions or investors who want to hold their securities till maturity and want to play risk free in the market adopt such type of practices.
For example: investors speculated that the price of metals going to increase in future and they will get huge profits from it.This will make them hold the securities of metal companies for that future period and making its exchange market illiquid by not exchanging in the market.
Same can happen for the bond market where some investors hold bonds to get the fixed periodic coupon payments and hold it till maturity. Such events can also happen for particular stocks of certain stable companies, government securities, municipal bonds etc.