Locally-Capped Contract

DEFINITION of 'Locally-Capped Contract '

A type of embedded option found in structured investment products, that limits upside potential of the product, for specific periods over its life.

BREAKING DOWN 'Locally-Capped Contract '

In Principal Protected Notes, an investor receives a guarantee providing downside protection on the investment. A cost of this downside protection is that the investor will not participate in the full upside potential of the underlying investment. The underlying investment or reference portfolio can be capped locally or globally. As an example if the limit is a maximum return of 10% per quarter, no matter how well the underlying investments did, then that would be considered a locally-capped contract.