Interest rate futures are based off an underlying security which is a debt obligation and moves in value forex arbitrage 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. LIBOR June1 month LIBOR futures contracts. What Types of Interest Rate Futures are Traded?
Below is the list of short term interest rate futures contracts traded on US and foreign interest rates. The ability for banks to be able to have access to fund US dollar loans to foreign purchasers of US goods without the currency exchange rate risks makes the Eurodollar futures very attractive for hedging purposes. T-bill futures contracts are available in quarterly contracts. These deposits are not interest bearing deposits and therefore banks lend these funds out to other member banks for overnight term. Cetes are government issued short term paper issued in Mexican Pesos. Similar to the US Treasury market, Cetes is the basis for short term lending rates in Mexico.
The TIIE is the benchmark interbank interest rate that Mexican banks use to borrow or lend from the Bank of Mexico. 24 hours a day from anywhere in the world. Send this article to a friend. Enter multiple addresses on separate lines or separate them with commas. Bond basics are the introductory concepts to the bond market. All of our trading results, charts, and stats are available to you at no cost. We don’t have a members-only area charging you expensive fees for so-called “secret” expert advisor information.
You must be aware of the risks and be willing to accept them in order to invest in the forex, futures and options markets. Don’t trade with money you can’t afford to lose. 41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.