Investopedia

Continue to Site »

Dollar Roll

Filed Under » , , ,
Dictionary Says

Definition of 'Dollar Roll'

A type of repurchase transaction in the mortgage pass-through securities market in which the buy side trade counterparty of a "to be announced" (TBA) trade agrees to a sell off the same TBA trade in the current month and to a buy back the same trade in a future month at a lower price.

In a dollar roll, the buy side trade counterparty gets to invest the funds that otherwise would have been required to settle the buy trade in the current month until the agreed upon future buy-back. The sell side trade counterparty benefits by not having to deliver the pass-through securities (which they might otherwise have shorted or committed to another trade) in the current month.
Investopedia Says

Investopedia explains 'Dollar Roll'

The price difference between months is known as the drop. When the drop becomes very large, the dollar roll is said to be "on special". This might happen for several reasons, including large collateralized mortgage obligation deals that increase the demand for mortgage pass-through securities, or unexpected fallout of mortgage closings in a mortgage originator's pipeline. In both cases, financial institutions might have more sell trades in the current month than they are able to deliver securities into, forcing them to "roll" those trades into a future month. The greater the shortage of available securities in the current month, the larger the drop becomes.

Articles Of Interest

  1.

    Profit From Mortgage Debt With MBS

    Mortgage-backed securities can offer monthly income, a fixed interest rate and even government backing.

  2. The Bond Market: A Look Back

    Find out how fixed-income investments evolved in the past century and what it means today.

  3. Why Your Pension Plan Has Sovereign Debt In It

    One type of security pensions tend to invest in is sovereign debt, or debt issued by a government.

  4. Should You Add A Securities License To Your Qualifications?

    Clients love planners who sell securities, but a securities license takes a lot of work. Learn if the stress and study are worth it.

  5. The Best Way To Buy Silver

    Discover whether ETFs or physical bullion is the best way for investors to get exposure to silver.

  6. 6 Popular ETF Types For Your Portfolio

    Exchange traded funds are an extremely popular diversification tool that can protect your portfolio during troubled periods.

  7. 5 ETFs Flaws You Shouldn't Overlook

    Despite their popularity, exchange traded funds have some drawbacks that investors should know about.

  8. Top 5 Budgeting Questions Answered

    You don't need a degree to understand your money, begin saving and pay down debt.

  9. Investing In IPO ETFs

    Learn the history, rules and risks of investing in IPO exchange-traded funds.

  10. 5 Common Misconceptions About ETFs

    The rise in these funds' popularity has contributed to misinformation about what they are and how they work. Learn more here.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  2. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  3. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  4. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  5. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  6. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.
Trading Center