Forex arbitrage

Forex arbitrage

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After completing the CAPTCHA below, you will immediately regain access to www. Interest rate futures are based off an underlying security which is a debt obligation and moves in value as interest rates change. When interest rates move higher, the buyer of the futures contract will pay the seller in an amount equal to that of the benefit received by investing at a higher rate versus that of the rate specified in the futures contract. To accurately determine the gain or loss of an interest rate futures contract, an interest rate futures price index was created.

As rates fluctuate, so does this price index. You can see that as rates increase, the index moves lower and vice versa. How do you calculate the gain or loss on the futures contract? 01, or 1 basis point however, some contracts have a tick value of . 005 or half of 1 basis point.

50 and a move from 94 to 94. 1250 gain per contract for someone who is long the futures. As the hedge becomes profitable and traders see less risk in the market, the hedge will be peeled off. Other participants will use interest rate futures to hedge forward borrowing rates. For example, it is currently March and I need to borrow money in June for 1 month at Libor plus 2. The current LIBOR rate is 2.