DEFINITION of 'Switching'

1. In mutual funds, the process of transferring an investment from one fund to another.

2. In securities, the process of liquidating a position in exchange for other securities with better prospects for growth, yields or capital gains.

BREAKING DOWN 'Switching'

1. Investors may switch their assets between funds in the same family or into a different family entirely. Generally, no-load funds do not charge for these transactions. However, some brokerages may charge a commission.

2. When investors switch securities, they essentially use the cash received from the liquidation of their initial securities to purchase new securities.

In futures, an investor will switch futures contracts by closing an open position and simultaneously entering a new, similar futures contract with a longer maturity.

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