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EmailWhat It Is:
A wash occurs when two actions cancel each other out (such as a gain and an equal loss), effectively creating a break-even situation.
How It Works/Example:
Let's assume XYZ Company sells $1,000 worth of products. If these products cost XYZ Company $1,000 to manufacture, the transaction is considered a wash. Likewise, if an investor makes a $1,000 profit on an investment but loses $1,000 on another investment during the same time, the result is considered a wash.
Why It Matters:
Obviously, profit motivates most companies to minimize wash transactions. However, wash transactions may have tax benefits, most of which are illegal. Investors should be aware of specific tax rules and prohibitions regarding wash transactions (see Wash Sale).
A coupon bond, frequently referred to as a bearer bond, is a bond with a certificate that has small detachable coupons. The coupons entitle the holder to interest payments from the borrower. Coupon bonds are rare today because most bonds are not issued in certificate form; rather, they are registered electronically (although some bondholders still choose to hold paper certificates). Thus, these days the term coupon refers to the rate of interest on a bond rather than the physical nature of the certificate.
In the 1980s, some financial institutions began purchasing coupon bonds and selling the coupons as separate securities, called strips.
