What is an equity swap?16 Jan 2025 22:19
Investor hedging risk
An investor with a long position in a stock may enter into an equity swap to hedge against the risk of a price drop. For example, an investor who owns 100 shares of a petroleum company may enter into an equity swap if they believe the stock price will fall.
Company gaining exposure to a stock
A company may enter into an equity swap to gain exposure to a stock without purchasing shares. For example, a company with $10 million in cash may enter into an equity swap to gain exposure to Stock B.
Hedge fund shorting a stock
A hedge fund may enter into an equity swap to short a stock without directly shorting shares. For example, a hedge fund may enter into an equity swap to short GameStop shares without shorting the stock directly.
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