What is Fungibility?

Because listed options are considered fungible goods, it is possible to close out positions by taking offsetting positions. For example, if you sell (write) a call option, you can close out the position by buying a call with the same underlying asset, expiration date, and strike price—their components are can you buy bitcoin with debit card on litecoin atm can you buy dogecoin stock on etrade equivalent. Fungible assets create a flow in trade and exchange processes because they’re essentially equal in value.

Also, the bank must return exact bars to the depositor upon how to buy api3 withdrawal. People more often confuse the concept of fungibility with exchanging a particular item with any other product. Instead, it applies to the interchange of equal units of goods or commodities. Some considerations, however, come into play when deciding whether or not a fungible commodity is suitable for substitution. The line between fungibility and non-fungibility may be a thin one.

What Does the Word Fungible Mean?

Hence, the deal was unidentical and non-equivalent in all respect. Not every tradable instrument is fungible in the stock market. However, stocks that are eligible for substitution with their identical counterparts are cross-listed. These are securities trading on multiple marketplaces, including the domestic and foreign exchanges. A commodity must be fungible before it can be traded on a commodities exchange. A specific how to buy bitcoin with cash in the uk grade of commodity, such as No. 2 yellow corn, is a fungible good because it does not matter where the corn grew; it is essentially the same product.

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This also goes for shares of exchange-traded funds (ETFs) and similar investments. Money has a set value and is considered like for like in a value transaction. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. Diamond is non-fungible because of its uniqueness in size, shape, color, quality, and grade. So, it is impossible to substitute a unit of a diamond for the same quantity of another diamond. Another thing is that a banknote can be interchanged with multiple units as far as their values are equal.

Examples of fungible

So, for example, to pay a $10 bill, a person does not necessarily need a different $10 banknote. Instead, two units of $5 can work, which will not change the bill amount in any manner. Whether goods, assets, or commodities are fungible depends on the possibility of their interchange with different units of the same item without any effect. In other words, any noticeable difference in the quality of products of the same units affecting their value and utility will make them non-fungible. Precious metals are considered fungible, but there are exceptions. For example, an ounce of gold is equivalent to another ounce of gold as both are indistinguishable in form and value.

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• They own particular bars of gold, which are not considered to be fungible goods.
• Goods that are fungible are treated as commodities, and markets in commodities are active and liquid because of their fungibility.
• Sometimes, the term liquidity seems to be a fungibility synonym.
• So, for example, to pay a $10 bill, a person does not necessarily need a different $10 banknote.

Gold is naturally fungible because one ounce of gold is equivalent to another ounce of gold. Gold bars may be given unique serial numbers and purchased by particular investors while still being held by a custodian. Allocated gold holders generally have better legal protections in the event of a bankruptcy. They own particular bars of gold, which are not considered to be fungible goods.

Examples of highly fungible goods can be found in many of the products sold in an auto parts store. For instance, if a car’s windshield wiper fails, another similar product may be purchased to replace the defective product. By contrast, a non-fungible product is rare and specific in nature. An example of a non-fungible product is a genuinely-autographed letter by the English novelist Charles Dickens. Should this letter be burned in a fire, it is irreplaceable.

Sometimes, the term liquidity seems to be a fungibility synonym. Liquidity defines the exchange of goods, assets, and commodities for fiat or digital currencies or anything of value. Whereas in fungibility, the substitution can occur with anything identical in worth, quality, form, or function.

Fungible vs. Non-Fungible

It means a $10 bill will have the same value in every bank or every transaction made, irrespective of the series. Assets like diamonds, land, or baseball cards are not fungible because each unit has unique qualities that add or subtract value. For instance, because individual diamonds have different cuts, colors, sizes, and grades, they are not interchangeable, so they cannot be referred to as fungible goods. On the other hand, non-fungible tasks tend to be highly serial in nature and require the completion of earlier steps before later steps can even be started. As an example of a serial task that is not fungible, suppose there was a group of nine newly pregnant women.