An option in which the floor level is based on the last rate set for the underlying floating rate (LIBOR). If the floating rate moves below a preset trigger threshold in the resetting period, the floor strike for the remaining option will be decreased by a prespecified amount, down to a minimum level.

A momentum floor is an ideal protective hedge for investors. If rates remain high as expected, the premium cost would be lower than that of an ordinary floor. If rates drop, the strike will fall at a slow pace, and only down to a minimum level. Therefore, momentum floors are particularly useful for investors who seek rate protection from unexpected rate falls, but at a low initial cost. Generally, the option embedded in a momentum floor is cheaper than a normal option.

Momentum floors are also referred to as adjustable strike floors or ratchet floors.