In finance, a trade is an exchange of a security (stocks, bonds, commodities, currencies, derivatives or any valuable financial instrument) for "cash", typically a short-dated promise to pay in the currency of the country where the 'exchange' is located.

BASICS:

A financial instrument must be defined by the State (that regulates it); and it must registered with the State Regulator by the owner of the instrument (that issues it). The owner in this case is called: issuer of the financial instrument. The person requesting the instrument is called: applicant. Thus, in common practice the applicant (is a user) and the issuer of the instrument (most common enough is called the issuing bank). The fundamental criteria for every financial instrument is trustworthiness. The trust given by the free market will be there provided the instrument is a registered instrument as defined by the State that regulates it; and the issuing owner (be it an person or a corporate entity) must be allowed or authorized by the State to issue the same.

A financial instrument must surpass the following stages: (1)It must comply with ownership compliance; (2) It must comply with registration compliance; (3) It must comply with accountability for purposes of determining duties and obligations; rights and privileges; liabilities and warranties. Thus every financial instrument may be considered "negotiable,"or "non-negotiable," in character.

Ownership of the financial instrument is very important because the owner of the financial instrument declares that the instrument has the full faith of the whole banking and financial community. If the financial instrument is not compliant in terms of ownership, then the whole financial system of the State will be compromised. The issuer and the applicant are both joint owners of the instrument. The applicant may be the owner of the cash, real estate, or gold (precious metals), commodity (oil reserve or future harvest like: wheat, rice, corn, grains); diamonds (jewelry) that will support the financial instrument as issued by the bank. The bank as issuer of the financial instrument will issue the financial instrument provided the asset backing was complied by the applicant and the bank has verified and validated the same with sufficient standard degree of banking due diligence. [Mr. Mike Domingo]

It must comply with the registration compliance because a financial instrument is considered a "security paper," and all forms or kinds of security be it notes, bonds, checks, bills of exchange, commodity certificates, investment certificates, bank guarantees, long term notes; medium term notes, short term notes; commercial papers; letters of credit; stand-by letters of credit; are essentially considered security papers. Lastly it must comply with the accountability--the applicant of the financial instrument, the issuer of the instrument, the party-accepting the instrument will have duties and responsibilities; rights and privileges, warranties and liabilities in relation to the financial instrument as applied for, endorsed for approval; approved by the governing body (like board of directors; or board of trustees and/or board of governors); and registered with the Security Exchange Commission tasked to monitor the issuance, circulation, negotiation, transfer, assignment, retirement, conversion to cash; and redemption of the financial instrument. [Mr. Mike Domingo]

A financial instrument is considered negotiable in character, if it complies with all the standards of negotiable instruments law as defined by the State that passes the Negotiable Instruments Law; and a financial instrument is considered non-negotiable if violates the negotiable standards, as imposed by the negotiable instruments law.

Define Negotiable Instrument( Negotiable Financial Instrument): An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) It must contain an unconditional promise or order to pay a sum certain in money (legal tender); (c) It must be payable on demand or at a fixed or determinable future time; hence in some cases it payable on demand or payable at sight; or payable 1-Year And One-Day or payable 5-years and one-day; (d) It must be payable to the order or to the bearer; [if it is payable to order it is considered an order instrument; and if it is payable to bearer it is a bearer instrument; and (e) Where the instrument is addressed to a drawee (a person, be it an individual, or corporate entity or any other recognized person like trust corporation or banking corporation)--the drawee must be named or otherwise indicated therein with a reasonable certainty. [Mr. Mike Domingo]

Thus, a negotiable financial instrument ceases to be a negotiable if it violates the negotiable standards. If it is non-negotiable in character it cannot be negotiated in a legal sense. The act of negotiation is very important, because the transfer of possession of the financial instrument carries with it great financial responsibility; and therefore the negotiable features is sought by the user of the instrument. If the financial instrument is considered non-negotiable it can be given to the recipient by other means of conveyance---like Transfer, Sale, Assignment. The word "negotiable," is entirely different from the legal word "transfer," and from the legal word "assignment." This is very important because of the following vitiation of contractual consent--like fraud, accident, mistake, [Mr. Mike Domingo].

Financial Instrument: