Total Return Swap

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A total return swap or TRS is a a contract between two counterparties that replicates the exposure to a portfolio of stocks, bonds or other assets in exchange for a fee or financing rate.[1]

This type of swap allows an asset manager to take a larger position with limited funds up front rather than having to acquire them in the public markets.[2]


There are two parties to a TRS, the payer and the receiver. Typical payers would be banks, hedge funds insurance companies or a fixed-income portfolio manager with lots of cash.[3]

The payer makes a payment to the receiver if the total return is positive. If the total return on the assets is negative, then the receiver makes a payment to the payer.

While the swap is bespoke and can reference any index or portfolio, payment frequency and financing rates are also being standardized. All payments and end date for the swap are set at the time the contract is negotiated.