Free Right Of Exchange

AAA

DEFINITION of 'Free Right Of Exchange'

An investor's right to transfer an asset to another party without incurring any transaction fees on the exchange. Unlike a sales transaction, the investor is either giving away or trading stock and should not be taxed on the transaction.

INVESTOPEDIA EXPLAINS 'Free Right Of Exchange'

The free right of exchange plays an important role in the gifting or donation of stock. Making a charitable donation of stock will allow you to avoid any capital gains tax that has been accruing on the asset because the transaction is not taxable as a sale.

Exchange funds capitalize on the free right of exchange by allowing investors to trade larger holdings of a single stock for diversified units in a portfolio. Because the stock is swapped, no transaction or sales costs are associated with the exchange. This allows an investor to balance his or her portfolio while avoiding capital gains tax.

RELATED TERMS
  1. Trade

    A basic economic concept that involves multiple parties participating ...
  2. Capital Gains Tax

    A type of tax levied on capital gains incurred by individuals ...
  3. Charitable Donation

    A gift made by an individual or an organization to a nonprofit ...
  4. Transaction Costs

    Expenses incurred when buying or selling securities. Transaction ...
  5. ISDA Master Agreement

    A standard agreement used in over-the-counter derivatives transactions.
  6. Circus Swap

    A combination of an interest rate swap and a currency swap in ...
RELATED FAQS
  1. Can I donate stock to charity?

    Giving stock, instead of cash, as a donation can greatly benefit both parties. You will find that most charities, hospitals, ... Read Full Answer >>
  2. What are interest rate swaps on the OTC market?

    Interest rate swaps are agreements where counter parties agree to exchange interest rate cash flows based upon the difference ... Read Full Answer >>
  3. What are the Securities and Exchange Commission regulations regarding swaps?

    The U.S. Securities and Exchange Commission (SEC) was granted the authority to regulate security-based swaps (SBS) by Title ... Read Full Answer >>
  4. What would motivate an entity to enter into a swap agreement?

    The main purpose of swap agreements is to swap cash flows between counterparties for a certain market or asset. Generally, ... Read Full Answer >>
  5. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  6. What is the difference between LIBOR, LIBID and LIMEAN?

    LIBOR, LIBID and LIMEAN are all reference rates used to benchmark short-term interest rates. The London Interbank Offered ... Read Full Answer >>
Related Articles
  1. Taxes

    Changes In Tax Legislation And Regulation

    Keeping on top of these amendments can help you avoid penalties and take advantage of benefits.
  2. Investing Basics

    Solutions For Concentrated Positions

    Investopedia explains various tactics for divesting your overexposure to any one stock.
  3. Budgeting

    It Is Better To Give AND Receive

    You give to benefit others, but there can be perks for you too.
  4. Economics

    Effects of OIS Discounting for Derivative Traders

    The use of OIS discounting has important implications for derivative valuations and could positively or negatively impact a trader's profit or loss.
  5. Investing

    How Swaptions Can Reduce Risk in Portfolios

    How can investing in Swaptions reduce risk in portfolios.
  6. Investing

    What Warren Buffet Calls "Weapons of Mass Destruction": Understanding the Swap Industry

    A full analysis of how the swap industry works.
  7. Investing Basics

    How Are Interest Rate Swaps Valued?

    When trading in financial markets, higher returns are generally associated with higher risk. Hedge your risk with interest rate swaps.
  8. Investing Basics

    ISDA Master Agreement

    The ISDA Master Agreement is a document outlining the terms of an over-the-counter derivatives transaction between two parties. This document serves as a standard agreement in these transactions ...
  9. Insurance

    Credit Default Swaps: What Happens In A Credit Event?

    The credit crisis of 2008 prompted important changes to the settlement of credit default swaps.
  10. Fundamental Analysis

    Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center