A repo trade (repurchase trade) is an agreement to lend against an asset that allows for its repayment (the repurchase part) to remove the lien/pledge/encumberance against that asset.
Repo trades are the most common with securities where the securities are blocked or physically transferred away with the right to repurchase by paying the loan off and removing the pledge/encumberance from the shares.
They are a great way to utilize what many seem to consider a dead asset, their own personal securities or the company’s own treasury stock. However, all repo trade programs are not created equal.
Some actually lend against your securities in the hopes they decline in value. Crazy, huh? Well its true. We will show you why and how coming up in the next few entries.
Stu
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