What is the swap of your own capital?

SWAP of its own capital is an agreement between two investors, each of which has a source of income from an existing investment. The agreement means that it agrees to the exchange of income they receive from these investments either as a one -time stock exchange or for a specified period of time. In some situations, this can simply serve as a form of betting. In other cases, one or both parties can do as a form of security. This naturally makes the arrangement more complex than standard investment. Swap is also often used for lever effect. This is where investors or financial manager use a derivative so that the money in the investment is actually more than the actual cash they put. Each party uses a different investment known as a leg; Both legs make you an agreement. Normally one or both legs will be based on variable income from investment. If this were not the case, both parties would know how much they would make, which means that one of them would be guaranteed to be worse.

In the swap of its own capital, one leg will be based on investment in capital. In most cases, this is based on the performance of the stock market. The second leg will usually be a "floating" leg, perhaps based on a specific interest rate. In this situation, both parties would effectively predict how the stock market would work in connection with interest rates. In some cases, both legs will be based on investment in their own capital, although of course they will be based on various events or markets.

In many cases, the swap of its own capital will be based on an imaginary principle. This means that both parties may not actually invest that agreement is established. Instead, it agrees with an imaginary or hypothetical amount of investment. When they settle the agreement, they find out how many of them would do if they actually invest this amount. As the only money that changes hands is the difference between "profit" on both imaginary investments, companiesThey can earn or lose much more than if they really had to burn cash for an investment.

In some cases, the investor will enter the swap of his own capital simply because he believes he will make more accurate predictions than the other party. SWAP of your own capital can also be used to ensure. This is where an investor who costs to earn or lose a lot of money depending on the outcome of the investment creates a second smaller investment that pays off if the main investment goes wrong. This minimizes both potential profits and loss of the main investment.