equity financing, explained
A learning log on the quiet part of every stock position: what it costs to hold. I'm working through SOFR, HIBOR, delta one, hedging and equity swaps, explaining each in plain English with live rates.
concept note · live ratesthe one idea this whole log is about
You can own a stock two ways. Pay for it in full, or get the same exposure without paying up front, through a swap, a future or a margin loan. The second way is not free. Someone else has paid for the shares, and you pay them interest for it.
That interest is almost always a reference rate plus a spread. In US dollars the reference rate is SOFR. In Hong Kong dollars it is usually HIBOR. So these two numbers quietly sit inside the P&L of every leveraged long, every short and every long/short book.
Buying a stock outright is like buying a flat with cash. There's no rent, but your money is tied up and can't earn interest elsewhere.
A swap is renting the same flat. You live there, and every rise and fall in its value is yours, but you pay rent each month. The rent is the reference rate (what money costs in general) plus the landlord's margin (the spread). When rates rise, rent goes up for every tenant at once.
Every page in this log is a closer look at one term in this line.
what the rates are saying today
Borrowing US dollars overnight against Treasuries costs 3.62%. That is the starting point for the funding leg of every USD equity swap.
Borrowing Hong Kong dollars for a month between banks costs 2.90%, which is 67bp cheaper than SOFR. So right now a long Hong Kong stock position funded in HKD costs less to carry than the same position funded in USD, and a short earns less on its cash.
USD/HKD is 7.8452, close to the weak side of the peg. Money has been leaving HKD, often because cheap HIBOR makes it attractive to borrow HKD and hold USD. If it reaches 7.85, the HKMA buys HKD, liquidity drains and HIBOR tends to climb back toward SOFR.
read it in order
This site started as a pipeline pulling financing data across five asset classes. The numbers that matter most to a financing desk turned out to be the ones nobody publishes for free: stock borrow fees, swap spreads, dealer funding levels. Those pages ended up mostly saying "no data".
So I kept the two rates that are free, reliable and genuinely central (SOFR and HIBOR) and spent the effort explaining what they do to a position. Every number in a worked example is either computed from those live rates or clearly marked as an illustrative assumption.