Total return swap (TRS) - Financial definition
Financial acronyms
The entire acronym collection of this site is now also available offline with this new app for iPhone and iPad.
Concise definition of the term total return swap
A financial contract between two parties in which the total return of a specified asset is exchanged for another cash flow. One counterparty (the total return payer) pays the total return (interest plus fees plus price appreciation less price depreciation) of the asset and (usually) receives an IBOR rate plus a spread from the other counterparty (the total return receiver).
Comprehensive definition of the term total return swap
The price appreciation or depreciation may be calculated and exchanged at maturity or on an interim basis.
A total return swap allows investors to exchange the total economic returns of an asset for fixed or floating interest payments or vice versa. It provides a synthetic method to access off-balance-sheet assets or manage portfolio risk more efficiently.