Formative grading, unlike Summative grades, are meant for low-stakes activities to assess the progress of a student.
In the Grading section of your activity's Settings, you will see a Formative checkbox. Checking this setting will calculate students' grades for this activity as formative otherwise it will be calculated as a summative grade.
In your gradebook, there will now display an "F" or "S" below the name to indicate if this is Formative or Summative.
