Off Market FRA

Whats an Off-market FRA?

delhirocks, my understanding is that the majority of forward contracts are created such that at the time of initiation, the value of the contract to both the long- and the short positions is $0. However, for reasons I lack to experience to explain, there are times when a forward on an interest rate (FRA) will be created that from its very inception has value to either the long- or short position, which involves an initial payment between the parties. These are off-market FRAs. At LII you’ll be asked to explain the similarities between an interest rate swap and a series of off-market FRAs, fun stuff.


Do “off market” FRA’s really get traded? I can’t see why (unless it’s a credit reason). I think they are just constructs for talking about decomposing swaps and interest rate derivatives. So you say “The swap can be decomposed into a series of off-market FRA’s and [blah, blah]”.