A participating forward allows you to secure a protection rate (much less favourable than the benchmark forward rate), while allowing you to take full advantage of a favourable move in the spot rate at expiry (no ceiling), in the limit of the participation rate.
Complexity level : 
:
Catégorie : 1 *
Guarenteed protection rate : 
Protection rate level against benchmark forward rate :
Much less favourable
Amount dealt at expiry :
Same as the notional amount
In what market to use it ?
Participation in a favorable move in spot :
Scenario 1
At expiry, if the spot rate is less favourable than the protection rate, you can buy the notional amount at protection rate.
Scenario 2
At expiry, if the spot rate is better than the protection rate, you must buy 50% of the notional amount at protection rate and you can buy 50% of the notional amount at spot rate.
| Currency cross |
EUR / USD |
| Side |
Buy USD |
| Contract maturity |
6 months |
| Benchmark forward rate |
1,1030 |
| Protection rate level |
1,0800 |
| Improved rate level |
N/A |
| Readjusted rate level |
N/A |
| Low barrier level |
N/A |
| High barrier level |
N/A |
| Participation rate |
50% |
| Ratio |
1 : 0,5 |
| Reserve of points |
N/A |
| Type of contract |
N/A |
| Frequency of fixings |
N/A |
| Frequency of deliveries |
N/A |
| Fixing |
10 am, New-York time |
Advantages
- You benefit from a guaranteed protection rate whatever the movements in the exchange rate
- You take full advantage of a favourable move in the spot rate (no ceiling) for 50% of the notional amount
Disadvantages
- The protection rate is much less favourable than the benchmark forward rate
- Participation in the favourable move in the spot rate is limited to 50% of the notional amount