Collars work by combining two separate options agreements: an option which gives you the right to sell a currency at a protected rate, and an option which would act as a best-case rate.
If, at the pre-agreed expiry date, the rate of exchange is inferior to the worst-case rate, you’re protected. If the rate of exchange is beyond the best-case rate, you’re obliged to deal at the best-case rate. If the rate of exchange is between the two levels, you are free to trade at the prevailing rate.
A participating forward allows you to hedge against negative currency fluctuations but at the same time be able to benefit, in part, from favourable market movements.
This is achieved by agreeing on a ‘strike rate’ which gives you the right to exchange at the protected rate should the currency pair move against you, while also allowing you to participate in a percentage of any favourable rate movements – this is usually 50% but can be tailored to requirements.
Learn about other zero-cost FX options including knock-out options and extendible FX options that could help your business manage risk by calling +353 1 211 8666.
In addition to a foreign exchange options, we also provide a wide range of FX solutions for you and your business’s unique needs.