We’re going to hear a lot about equity total return swaps over the next couple of days but let me take a second to point out how extremely normal they are and how unsurprising it should be to find out that Archegos was using them.
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Replying to @MidAndFarEast
In a forward you will agree now to pay a fixed price to receive the stock in the future. All financing costs/borrow costs/fees/dividends will be factored into the forward price rather than accounted for separately. When the forward matures you either take delivery of the stock
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Replying to @macrocephalopod
or you close it out by settling in cash, roll the forward to a future date if you want to keep exposure without taking delivery.
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Replying to @macrocephalopod
In a TRS you agree with the bank to receive price appreciation + dividends on one leg, and financing/borrow/fees on the other leg. They can be short duration swaps (in which case you roll them if you want to keep exposure) or longer term (in which case you
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Replying to @macrocephalopod
would need to unwind the swap to get out of the position). TRS are extremely liquid and more common than single name forwards.
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Replying to @macrocephalopod
A CFD is something I’m less familiar with but it seems to be essentially the same as a perpetual TRS with higher fees and aimed at retail traders? You still receive dividends if long and pay them if short.
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In some countries (eg India) it is common to trade futures on single names, essentially to get around foreign ownership restrictions. These function like single name forwards but they are exchange cleared rather than bilateral.
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