As an investor, you know how important liquidity is. But when cash is short, it can be difficult to get any money out of your well placed investments and instruments. Monetizing instruments can be a great way to get what you need now. Firms with open credit limits or large banks often will offer to monetize instruments for you. Large scale companies or investors will sometimes use excess profits to monetize your securities and investments in order to offer you the liquidity you need. Sometimes you will not need to repay funding and you will get your instrument back after the contract period.

Once you have located an institution that works in monetizing instruments, you can begin to negotiate the terms with them. Usually they will require you to submit all the information about your instrument before agreeing to work with you. The fee is then negotiated. Most quotes given at this point are around 80%. However, 55% is about as low as it is going to get; and some contracts have been as high as 95%. The final contract should be carefully reviewed, but most contracts are fairly straightforward. Once you have signed the paperwork, the closing may only take a few hours.

The terms of the agreement are mostly based on the type of instrument and how much its value is. Types of instruments that can be monetized include securities like bonds, bills, and stocks; cash like loans, deposits, certificates of deposit, spot foreign exchange; exchange traded derivatives like bond futures, bond options, stock options, equity futures, currency futures; and OTC derivatives like interest rate swaps, interest rate caps and floors, exotic instruments, foreign exchange options, currency swaps, forward rate agreements, and outright forwards. Instruments are divided into categories depending upon their type, such as long term debt, short term debt, equity, and foreign exchange. Monetizing instruments that have higher value will result in a successful contract.

In monetizing instruments, a quick close is desirable. You need the liquidity now rather than in the time of those that will delineate your monetized contract. You will get further if you go in prepared and follow through in every step of the process. Go to an institution that has the ability to take the risk on without questioning your application. Give them reasons to want to take on your instruments by providing them with necessary information from the start; don’t wait for them to ask.