> For the complete documentation index, see [llms.txt](https://eako-capital.gitbook.io/eako-user-guide/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://eako-capital.gitbook.io/eako-user-guide/cap-loss-forward.md).

# Cap Loss Forward

Also known as Limit Loss Forward

{% hint style="info" %}
The Cap Loss Forward combines an OTM option with a synthetic forward.\
\
The strategy enables the client to gain the protection of a forward position, whilst at the same time limiting the maximum negative mark-to-market (loss) that would otherwise arise were the forward to settle OTM. <br>

The strategy is typically offered as a zero cost solution where the cost of the OTM option is funded by adjusting the synthetic forward rate.
{% endhint %}

### **Payoff Diagram:**

<figure><img src="https://3557203473-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FYQ7mk2lqrd7KNTuAuSYT%2Fuploads%2FCZkLE7BrNEvuBTs9dO07%2FCap%20Loss%20Fwd.png?alt=media&amp;token=8938b993-80f9-4493-84f1-1edf7fae84fa" alt="Cap Loss Forward Payoff Profile"><figcaption></figcaption></figure>

### **Payoff at Expiry:**

At expiry if EURUSD fixes:

* Above the Strike, the client is fully protected at the Strike on 100% of the Notional.&#x20;
* Below the Strike but above the OTM Call Strike, the client will find itself obligated to trade at the Strike level on 100% of the Notional.
* Below the OTM Call Strike, the client rate will improve by 1pip for every pip that EURUSD fixes below the Call Strike.
  * *Payoff = Min(Strike -(OTM Call Strike - Spot),Strike)*