Cashless Conversion


DEFINITION of 'Cashless Conversion'

The direct conversion of ownership (from one ownership type to another) of an underlying asset without any initial cash outlay from the investor. Many cashless conversions are automatically triggered on a specific date as specified in the original contract, and will typically affect an entire class of shares or contracts.

BREAKING DOWN 'Cashless Conversion'

Some examples of cashless conversions are from warrants to stock, preferred shares to common shares and stock options to common stock.

In a standard cashless conversion, there is no upfront cost because the transaction will usually be immediately profitable for the investor. If there are any costs involved, they will be paid from the proceeds of the conversion. In the case of warrants, there will often be cashless conversions when the warrant contract runs out if certain breakpoints in the underlying asset or interest rates have been met.

  1. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  2. Conversion

    The exchange of a convertible type of asset into another type ...
  3. Cash

    Legal tender or coins that can be used in exchange goods, debt, ...
  4. Option

    A financial derivative that represents a contract sold by one ...
  5. Warrant

    A derivative security that gives the holder the right to purchase ...
  6. Common Stock

    A security that represents ownership in a corporation. Holders ...
Related Articles
  1. Bonds & Fixed Income

    Introduction To Convertible Preferred Shares

    These securities offer an answer for investors who want the profit potential of stocks but not the risk.
  2. Options & Futures

    Warrants: A High-Return Investment Tool

    Discover the advantages of this largely unexploited investment vehicle.
  3. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  4. Options & Futures

    Pick 401(k) Assets Like A Pro

    Professionals choose the options available to you in your plan, making your decisions easier.
  5. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  6. Investing

    The Best Strategies to Manage Your Stock Options

    We look at strategies to help manage taxes and the exercise of incentive and non-qualified stock options.
  7. Investing Basics

    Retirement Planning Using Long-Dated Options

    Retirement planning using high-risk options? It is possible, and studies confirm better yields than conventional methods. Here’s how.
  8. Investing Basics

    Understanding Vega

    In options trading, vega represents the amount option prices are expected to change in response to a change in the underlying asset’s implied volatility.
  9. Investing Basics

    Explaining Payment-In-Kind

    With respect to financial instruments, PIK means payments made to the holder of a financial instrument that is something other than cash.
  10. Options & Futures

    Introduction to Options Types

    Options are often the bread and butter of day traders. Here are some of the more common types of options.
  1. I own some stock warrants. How do I exercise them?

    Typically, stock warrants are derivative instruments added to new issues of stocks or bonds to make these issues more attractive. ... Read Full Answer >>
  2. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  3. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. How many votes am I entitled to, if I own ordinary shares of a company?

    If an investor owns one ordinary share of a company, that investor is entitled to one vote on all of that company's major ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  2. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  3. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  4. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Capitalized Cost

    An expense that is added to the cost basis of a fixed asset on a company's balance sheet. Capitalized Costs are incurred ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!