what is a held for trading security 
a held for trading security is a debt or equity investment that investors purchase with the intent of selling within a short period of time usually less than one year within that time frame the investor hopes to see appreciation in the value of the security and sell it for a profit because of accounting standards companies have to classify investments in debt or equity securities when they are purchased other than held for trading other options include held to maturity or available for sale understanding a held for trading securityheld for trading securities can generate a profit from short term price changes when investors sell them in the near term they are short term assets and their accounting reflects that fact the value of these investments is reported at fair value and unrealized gains and or losses are included as earnings the initial cost basis of these investments equals their fair value at the time of purchase over time the market value of trading securities changes and investors must report any unrealized gains and or losses as earnings the calculation of those gains and losses involves comparing a trading security s fair market value to its original purchase cost basis held for trading securities are classified as current assets since they will be sold within a year and the cash flows from these securities are considered operating cash flows cash flows from held to maturity and available for sale securities are cash flows from investing held for trading security and fair value adjustmentany increase or decrease in the fair value of a held for trading security requires an accounting adjustment one must add or subtract the change from the security s previously reported value on the financial statements an accountant achieves this by debiting an increase or crediting a decrease in the fair value change to an account called securities fair value adjustment trading which is a sub account of the asset account for trading securities a debit or a credit to the account of securities fair value adjustment is an accumulation or deficit respectively to the fair value of the trading security changes in the fair value of a held for trading security from one period to another become an unrealized gain or loss to earnings a debit to the account of securities fair value adjustment from an increase in the security s fair value requires a credit to record the unrealized gain that adds to net income conversely a credit to the account of securities fair value adjustment from a decrease in the security s fair value requires a debit to record the unrealized loss that reduces net income example of a held for trading securitysuppose that company abc purchased a security with the intent of selling it within a year that security was recorded at its purchase costs when it was bought now suppose that nine months have gone by and the security had a fair value of 1 000 as last reported on its financial statements in the following quarter by the end of the current accounting period the security is trading for 1 200 in the market which is the fair value of the security per accounting standards the company will have to record the new fair value of the security in its quarterly reporting the fair value adjustment accounting requires a debit of 200 to the securities fair value adjustment account given the original value of 1 000 the trading security account for this particular security ends the period with a fair value of 1 200 the 200 is also an unrealized gain that is reflected in earnings 