To trade eurodollar futures contracts, you’ll need an account with a brokerage firm that specializes in futures trading, as well as a margin deposit.
What are my options for trading Eurodollar futures?
The open outcry eurodollar contract symbol is ED, and the electronic contract symbol is GE. Eurodollar futures are traded electronically on the CME Globex electronic trading platform from 6 p.m. to 5 p.m. EST on Sunday through Friday. As with other financial futures contracts, the expiration months are March, June, September, and December. The tick size (minimum fluctuation) in the nearest expiring contract month is one-quarter of a basis point (0.0025 = $6.25 per contract) and one-half of a basis point (0.005 = $12.50 per contract) in all other contract months.
What are Eurodollar futures and how do they work?
Eurodollar futures are interest-rate-based financial futures contracts that are particular to the Eurodollar, which is basically a US dollar held in commercial banks outside of the US. Eurodollar futures have evolved into one of the world’s most popular and inventive contracts, with unrivaled flexibility and adaptability, since their inception in the early 1980s.
What is the purpose of Eurodollars?
The phrase eurodollar refers to deposits in US dollars held by foreign banks or American bank branches abroad. Eurodollars are not subject to Federal Reserve Board regulation, including reserve requirements, because they are stored outside the United States. Dollar-denominated deposits that were not subject to US banking laws were virtually exclusively held in Europe at first (hence, the name eurodollar). They’re now extensively held in branches in the Bahamas and the Cayman Islands, as well.
What is the total amount of Eurodollars?
The Eurodollar market is difficult to forecast because it is not governed by any government agency. The Eurodollar market, on the other hand, is by far the largest source of global money. Nearly 90% of all overseas loans were made this way in 1997.
J.P. Morgan Guaranty bank estimated the Eurodollar market to be worth 1.668 trillion dollars in December 1985. The Eurodollar market was predicted to be worth roughly 13.833 trillion dollars in 2016.
What is the Eurodollar alternative?
Eurodollar options allow you to limit your losses while still having the opportunity to profit from positive changes in futures prices. All Eurodollar options are American-style, which means they can be exercised at any time before or after expiration.
What is CME Eurodollar?
Specs. Eurodollar futures and options are the favored tool of traders to communicate their views on future interest rate movements because they represent a key building component of the financial system. You can effectively target interest rate risks that matter to you with unrivaled book depth and deep liquidity out more than five years.
Is the Eurodollar rate identical to Libor?
LIBOR rate is another name for it. This rate is the same as the Eurodollar base rate, but it has been changed to account for the maximum reserve requirements that lenders must meet on their Eurodollar deposits.
Is convexity present in Eurodollar futures?
At the short end of the curve, the quantity of convexity is small. A three-month FRA and Eurodollar futures are used in this scenario. Convexity grows as you move further out on the curve, sometimes substantially.
Who are the Eurodollar market’s participants?
Large corporations, particularly international firms, commercial banks, and central banks are the primary lenders in the Euro-dollar market. Commercial banks are the most common intermediaries, whereas end borrowers of all economic and institutional stripes borrow in the market.
What is a FRA curve, exactly?
In the financial sector, the spot yield curve is used to price an asset and determine its future value at t(n) from t0 (right now). The spot yield curve is known as the zero curve among experienced traders.
If you had $1,000 to invest right now, you can simply get the current rate by going to a bank and requesting a one-year CD. Your benchmark is the CD rate. You know you’d be better off placing your money in the CD if you invested in something with a lower return than the CD (provided the risk is similar). It’s a no-brainer.
But what if you know you’ll have $1,000 in a year and want to put it aside for a year? You can’t go into a bank and lock in an interest rate for a year down the road. The bank will not, and most likely will not be able to, tell you what the future interest rates will be. Different bank departments may be able to help, but not the one where you go in because the target customers are different.
A Future Rate Agreement (FRA) is a contract between two parties that states that if you lend your money, you will receive the set interest plus principal back at the end of the term.
For the sake of simplicity, we use a one-year FRA. The Eurodollar future, which is a FRA, can be one month or three months long in fact. Please keep in mind that all interest rates, regardless of period, are always expressed in yearly terms.