Expert Chaslau Koniukh
  • Companies
  • Global investment
  • Investors
  • Terminology
  • Economy
  • Stock Market
  • World exchanges
  • Tech and Marketing
Types of transactions
Market terminology

What are the types of repo transactions and their features?

22.06.2021
2 min read

Types of repo transactions: characteristics and key points

There are various types of transactions in the financial sector, including repo. Its goal is to save as much money as possible.
The term itself appeared in 1917, when the U.S. took part in World War I. These events led to an increase in taxes, which led to a decrease in demand for existing at that time forms of credit. Therefore, the Federal Reserve introduced a type of REPO transactions, which were used as an option for lending to U.S. banks. Over time, they began to be used not only for financial institutions.
REPO is a process in which one party sells some tangible assets to the other, which in most cases are securities. However, the sale is conditional upon the redemption of the assets after a certain period of time at a previously designated value. It is important for the seller to receive the desired amount now, and the buyer is interested in the funds spent being returned to him with interest in the future. In such a transaction, one party loans to the other, and the risk of not recovering the money is minimal, since the property remains with the buyer until payment is made. If no refund is made after the agreed period, the property shall become the property of the buyer.
There are several repo transactions:

  • direct repo, when the sale immediately goes with an obligation to repurchase;
  • reverse repo assumes after a specified period of time a reverse sale.

It should be noted that any trade is both forward and reverse, depending on the angle from which it should be analyzed.

Types of transactions

Repos can take place within one day or overnight. The last variant of the transaction assumes that one part is carried out on one day, and the other – on the next. If no deadlines are fixed, then a repo is called an open operation. Transactions, which are carried out in accordance with the exchange rules, are exchange repos. In this case, the trading floor shall guarantee compliance with all conditions. There are also tripartite transactions, where the execution of all points is monitored by a third party.
In most cases, repo is used for the sale of various securities. And at the conclusion of such a transaction the other party risks losing funds, because the shares may fall in price during the execution of the contract. To minimize the risks, two options are used. One of them is a discount, the size of which is determined by the level of reliability and liquidity of the securities. For blue chips, the discount will be lower than for less prestigious shares.
The second option to reduce the risks is compensation premiums. The amount of compensation is determined by the difference between the new share price and the value at which the transaction was concluded.

Tags: Market terminology
0
Previous Post Why American liquefied gas started to be less purchased in Europe Next Post Morgan Stanley: forecast of global economic development for the near future

You Might Also Like

patterns on the stock exchange-2
Market terminology
Patterns in the stock market: what shapes are used in technical analysis
07.02.2022
Support and resistance
Market terminology
What is the support and resistance lines: using the tool
20.09.2021
Special purpose acquisition company
Market terminology
Special purpose acquisition company or SPAC: features of a shell company
09.03.2022
system trading-1
Market terminology
System trading as a tool for market activity
18.01.2022
Bid and Ask
Market terminology
Bid and Ask: rules for using them to manage trades
08.09.2022
underwriter profession
Market terminology
Underwriter: a profession that helps assess business risks
04.11.2020

Recent Posts

  • 1Apple Search
    Apple Corporation is working on its own search engine, Apple Search
    28.01.2023
  • 2Tom Ford brand
    Estee Lauder made a deal to buy the fashion brand Tom Ford
    27.01.2023
  • 3Golden Visa
    The Golden Visa program has brought Portugal more than 6 billion euros during its existence
    26.01.2023
  • 4Michael Steinhardt
    Michael Steinhardt: the story of a prominent American investor
    25.01.2023
  • 5Cessna
    The Cessna aircraft company: how it all began
    24.01.2023

Popular Posts

  • Businessman Chuck Feeney: the man who gave the world Duty Free
  • Field of activity of the American Monsanto Company Corporation
  • Skolkovo analysts: the Russian energy market is suffering losses
  • Where can one obtain citizenship for investing in a country: overview of states?

Social media

Editor's Picks

Chaslau Koniukh
Analytics

American bankers from JPMorgan and Goldman Sachs advise to invest in gold: review by Chaslau Koniukh.

Spokesperson
17.08.2020
Expert Chaslau Koniukh
Analytics

Chaslau Koniukh on the analysts’ opinion on the key stake size change soon

Spokesperson
18.06.2020
expert Chaslau Koniukh
Analytics

Chaslau Koniukh: Internet trade market in Russia may reach 2.78 trillion rubles.

Spokesperson
30.05.2020
Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh
Analytics

Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh

Spokesperson
16.05.2020

Latest Posts

Apple Search
Apple Corporation is working on its own search engine, Apple Search
28.01.2023
Tom Ford brand
Estee Lauder made a deal to buy the fashion brand Tom Ford
27.01.2023
Golden Visa
The Golden Visa program has brought Portugal more than 6 billion euros during its existence
26.01.2023

Chaslau Koniukh

Expert Chaslau Koniukh

Chaslau Koniukh – an expert in marketing and project management, IT consulting, international investments, investor, financial analyst. A commodity trader, private consultant, entrepreneur, lecturer, author of several articles on the stock market.

Popular Posts

  • Businessman Chuck Feeney: the man who gave the world Duty Free
  • Field of activity of the American Monsanto Company Corporation
  • Skolkovo analysts: the Russian energy market is suffering losses
  • Where can one obtain citizenship for investing in a country: overview of states?
  • Alibaba Group: the secret of success from the founders of Aliexpress
Expert Chaslau Koniukh
  • Facebook
  • Twitter
  • Instagram
  • Biography

Chaslau Koniukh – an expert in marketing and project management, international investments, financial analyst.

Social media

Menu

  • Biography
  • Companies and corporations
  • Global investment
  • Investors and Entrepreneurs
  • Economy
  • Market terminology
  • Stock Market
  • World exchanges
  • Tech and Marketing
  • Analytics