Personal Finance
Personal Finance
Prepaid Forward Contract

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A prepaid forward contract can help you achieve multiple objectives. You can protect stock positions against the risk of falling stock prices while still retaining some opportunity to benefit from rising stock prices. A prepaid forward contract will also allow you to generate liquidity for diversification or other purposes.

Use a prepaid forward contract to receive from 75 to 85% of your stock's value in cash.
If you'd like to realize the value of your concentrated stock holding and generate cash without selling your stock, making interest payments on a loan or subjecting yourself to borrowing restrictions based on how you plan to use the funds, a prepaid forward contract may be the solution you need.

Flexible structuring to meet a range of needs.
When you enter into a prepaid forward contract agreement, you'll receive an upfront payment in exchange for a commitment to deliver securities in the future. On the settlement date, the number of shares you deliver will be dependent on the stock's market price at maturity.

Since the contract establishes floor and threshold prices that govern how many shares are returned at a given market price, you can protect your position against downside risk below the floor while enjoying appreciation potential up to the threshold price. You'll have cash in hand to use as you wish -- with no interest payments, no margin calls, and the security of knowing your losses are limited.