• Equity Swap

    It is a special type of swap agreement through which one investor can avail the benefit of stock investing without even owning the stock. By this swap one investor swaps the profit of a stock investment with some fixed payment.

    Example

    • Suppose one stock is trading at USD 100 and an investor expects it to go to USD 110 in one month.
    • So he will swap the expected stock profit with the actual owner with fixed payment of USD 5.
    • After one month he will pay to the actual owner USD 5.
    • His profit will depend on the stock price after one month. If after one month the stock value is USD 108, then his profit will be USD 8, which he will receive from the owner. If the stock price after one month is less than USD 100, he won’t receive or give any money.
    • If the stock price crosses USD 105 after one month, he will be in profit.

    This is how the equity swap works.

    Post Tagged with ,

Leave a Reply

Your email address will not be published. Required fields are marked *