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Financial future

A financial future is a futures contract on a short term interest rate (STIR). Contracts vary, but are often defined on a interest rate index such as 3-month sterling or US dollar LIBOR.

They are traded across a wide range of currencies, including the G12 country currencies and many others.

Some representative financial futures contracts are

United States

Europe

Asia

where

As an example, consider the definition of the International Money Market (IMM) eurodollar interest rate future, the most widely and deeply traded financial futures contract.

  • There are four contracts per year: March, June, September, December (plus serial months[?])
  • They are listed on a 10 year cycle. Other markets only extend about 2-4 years.
  • Last Trading Day is the second London business day preceding the third Wednesday of the contract month
  • Delivery Day is cash settlement[?] on the third Wednesday.
  • Payment is the difference between the price paid for the contract (in ticks) multiplied by the "tick value" of the contract which is $12.50 per tick
  • Before the Last Trading Day the contract trades at market prices. The Final Settlement Price is the British Bankers' Association[?] (BBA) percentage rate for Three–Month Eurodollar Interbank Time Deposits, rounded to the nearest 1/10000th of a percentage point at 11:00 London time on that day, subtracted from 100. (Expressing financial futures prices as 100 minus the implied interest rate was originally intended to make the contract price resemble a bond price).

Financial futures are extensively used in the hedging[?] of interest rate swaps.

See also



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