What is a Negotiable Instrument?

A negotiable instrument is a signed document that gives the bearer of the document permission to obtain a certain amount of money.

How Does a Negotiable Instrument Work?

Checks are the most common negotiable instrument. They are essentially permission slips to take money out of someone's bank account. Promissory notes are also negotiable instruments, but really, almost any document whose possession can trigger the transfer of money from one entity to another is a negotiable instrument.

Why Does a Negotiable Instrument Matter?

A negotiable instrument allows people to transfer money among one another. Most negotiable instruments are unconditional promises to transfer money at some point in the future; accordingly, he who has the instrument essentially has the money.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.