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

• 90-day Eurodollar *(IMM)
• 1 mo LIBOR (IMM)
• Fed Funds 30 day (CBT)

Europe

• 3 mo Euribor (LIF)
• 90-day Sterling LIBOR (LIF)
• Euro Sfr (LIF)

Asia

• 3 mo Euroyen (TIF)
• 90-day Bank Bill (SFE)

where

• IMM is the International Money Market of the Chicago Mercantile Exchange
• CBT is the Chicago Board of Trade
• LIF is the London International Financial Futures Exchange
• TIF is the Tokyo International Financial Futures Exchange
• SFE is the Sydney Futures Exchange

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.
• The minimum fluctuation (tick size) is half a basis point or 0.005%.
• 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 Bond (finance) price in that an increase in price corresponds to a decrease in yield).

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

See also

• forward rate agreement
• Currency Future
• Interest Rate Future