Reverse repo is a transaction behavior in which the People's Bank of China purchases valuable ** from primary dealers and agrees to sell valuable ** to primary dealers on a specific date in the future, reverse repo is the operation of the central bank to release liquidity into the market, and reverse repo maturity is the operation of the central bank to withdraw liquidity from the market. To put it simply, the transaction of actively lending funds and obtaining bond pledge is called reverse repurchase transaction, and the investor is the lender who accepts the bond pledge and lends the funds. Corresponding to reverse repo is positive repo, which refers to the transaction behavior of the central bank selling price** to primary dealers and agreeing to buy back the price** on a specific date in the future.
The risk of reverse repo is relatively low, but it is not completely risk-free The main risks may include the following:
1.Interest rate risk: The interest rate on reverse repo is volatile, and if the interest rate rises during the repo period, then you may not be able to achieve the expected returns.
2.Liquidity risk: In some cases, there may not be enough buyers or sellers in the market, preventing you from trading as expected.
3.Credit risk: While the counterparty to a reverse repo is usually an institution with a certain credit rating, there is still the possibility of default.
4.Operational risk: If you are not familiar with the operation process or trading rules of reverse repo, it may lead to wrong trading decisions.
However, in general, the risk of reverse repo is relatively small, which is suitable for investors with a lower risk appetite. Before engaging in reverse repo trading, it is recommended that you fully understand the relevant market and trading rules, as well as your own risk tolerance