TRF = Total Return Futures

TRFs are centrally cleared and exchange-listed alternatives to total return swaps (TRSs). They are a synthetic cash instrument whereby one party receives the total returns on an underlying index, or security, until expiry, while at the same time paying the financing costs to the counterparty for providing those returns.

In comparison to classic futures, TRFs are more explicit in terms of how they are priced. With a classic future, a lot of the pricing needs to be implied, including which dividends are coming before expiry and what repo rates are implied in that price. With TRFs, dividends are explicit; all dividends are received and priced versus the implied repo. It is a lot easier to price than a regular future. TRFs are designed to pay the returns analogous to a total return swap.

By using TRFs, one can realise profit and loss daily through variation margin.