macrocephalopod

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.

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

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.

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

would need to unwind the swap to get out of the position). TRS are extremely liquid and more common than single name forwards.