From a book, I read that the repo rate is usually higher than the reverse repo rate. i.e., the rate of financing a long security position is higher than the rate to lend cash using securities as collateral.

However, people also say the opposite side of a repo transaction is reverse repo, i.e., from the repo seller point of view, it is a repo transaction, but from a repo buyer point of view, the same transaction is a reverse repo transaction.

If this is this case, shouldn't repo rate exactly the same as reverse repo rate?

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    $\begingroup$ The mid-market price is the same. A repo (repurchase) is the same as a bond-offer, and a reverse-repo (sell back) is the same as a repo bid. If you are not a market-maker but a price taker you will have to bid higher than you can offer in order to cover the bid/offer spread set by the market makers. Hence from a price takers point of view the rev-repo is higher than the repo, when you include transaction charges. $\endgroup$ – Attack68 Jul 7 '18 at 6:43
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    $\begingroup$ It is the same with your bank: when you borrow money you will pay a higher rate than you will receive if you deposit the same amount of money (and the difference, of course, is how your bank makes a profit). In the repo market, however, the spread is much thinner. $\endgroup$ – Alex C Jul 7 '18 at 11:47
  • $\begingroup$ thanks both. did not have market maker and price taker in my mind when thinking about this. basically, market maker's repo rate is equal to the buyer's reverse repo rate. and market maker's reverse repo rate is equal to the buyer's repo rate. but for market maker, repo rate is higher than reverse repo rate.. $\endgroup$ – PeacePanda Jul 7 '18 at 23:18

For every repo there is a reverse repo. It's like in options, for every conversion there is a reversal.

When people say "I am going to repo out a bond" they mean to exchange bond for cash. Essentially repoing=borrowing.

When they talk about reverse repo they they mean giving out cash and getting the bond. Reverse repo =RRP=Lending money


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