The total-return receiver obtains a reference asset's income and price gains, pays its price losses, and pays an agreed funding leg to the total-return payer. This supplies economic exposure without buying the reference asset outright. The transfer includes ordinary market-price risk as well as credit risk, distinguishing it from a credit default swap. Both parties can have counterparty credit risk as the swap's replacement value changes.
A Total Return Swap (TRS) is a financial contract between two parties, typically referred to as the "payer" and the "receiver." In a TRS, one party (the total return payer) agrees to pay the total return of a specific asset (which can include capital appreciation, dividends, or interest) to the other party (the total return receiver) in exchange for a series of cash flows, usually as a fixed or floating interest rate.
New to topics? Read the docs here!