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 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. Investing

    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, schools and other nonprofit organizations will accept stock as a gift ...
  4. Budgeting

    It Is Better To Give AND Receive

    You give to benefit others, but there can be perks for you too.
  5. 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.
  6. 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 ...
  7. 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.
  8. Fundamental Analysis

    Derivatives 101

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

    The Barnyard Basics Of Derivatives

    This tale of a fictional chicken farm is a great way to learn how derivatives work in the market.
  10. Bonds & Fixed Income

    A Guide To Real Estate Derivatives

    These instruments provide exposure to the real estate market without having to buy and sell property.

You May Also Like

Hot Definitions
  1. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  5. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
  6. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor ...
Trading Center