EAKO - User Guide
  • Guides
  • EAKO User Guide
  • Glossary
  • Strategies
  • Call Option
  • Put Option
  • Synthetic Forward
  • Extendible Forward
  • Risk Reversal / FX Collar
  • Participating Forward
  • Cap Loss Forward
  • Knock-In Forward
  • KIKO
  • Fade Forward
  • Ratio Knock-Out Forward
  • TARF
  • Liability Knock-Out TARF
  • EKI TARF
  • Pivot TARF
  • EKI Pivot TARF
  • Barrier Options
    • Introduction
    • Types of Barriers
    • Time Aspect
    • Knock-In
    • Knock-Out
    • Knock In Knock-Out
  • Variations on Barrier Options
    • Double Knock-In
    • Double Knock-Out
    • European Knock-Out
    • Knock-In European Knock-Out
    • Knock-Out European Knock-Out
    • Performance Knock-In
    • Performance Knock-Out
    • Partial Knock-In
    • Partial Knock-Out
    • Partial Double Knock-Out
    • Forward Knock-In
    • Forward Knock-Out
    • Forward Double Knock-Out
    • Forward Knock-In Knock-Out
    • Knock-Out with Rebate
    • Discrete Knock-Out
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Knock-In Forward

Also known as Forward Plus, Forward Extra

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Last updated 2 years ago

The Knock-In Forward is a simple and yet efficient hedging strategy that offers a worst case guaranteed strike rate.

The client has the right but not the obligation to hedge at this rate provided that spot does not trade at or beyond a pre-determined Knock-In Rate. Else, the client is locked into a synthetic forward rate obligation at that strike rate.

Payoff Diagram:

Payoff at Expiry:

At expiry if EURUSD fixes:

  • Above the Strike, the client is fully protected at the Strike on 100% of the Notional.

    • The profit on the derivative will fully net off against the loss on the underlying exposure.

  • Between the Strike and above the Knock-In Barrier, the client can participate in the favourable movement and transact at the improved Spot Rate.

  • Below the Knock-In Barrier, the client will find itself obligated to trade at the Strike level on 100% of the Notional.

Knock-In Forward Payoff Profile