Interest Rate Futures: Introduction, Examples & Tutorials to Interest Rate Futures

Interest Rate Futures IRF are something that are gaining real good popularity. They are a kind of derivatives, which are based on interest rates, and offer hedging, arbitrage and speculative opportunities for various market participants.

Typically, it will be the banks which will get into Interest Rate Futures Contracts. However, with the invent and opening up of the Interest Rate Futures & other derivatives as listed products on leading stock exchanges of the world, now even the retail investors and traders can also put in their money into Interest Rate Futures & Derivatives.

In this article, we will talk about the various interest rates futures and derivatives. We will cover examples of Interest Rate Futures, Interest Rate Derivatives and provide a guideline to the topics covered as a course content for Interest Rate Futures & Derivatives.

Related How Interest rates affect stock prices

With the high volatility in the interest rates market and its negative correlation with the stock market returns (though debatable) and the recent recession, it has become clear that nothing in this world can remain stable and the same applies to the interest rate markets. Hence, just because you've bought a 20 year long bond which promised 10% annual return, it does not mean that the interest rates will remain the same during the whole 20 year period, and the price of the bond will also fluctuate because of the variation in the interest rates markets. Hence, it is very very important, not only for the traders and banks, but also for the retail investors like you and me, to be aware of the interest rates fluctutations and its affect on the overall market and the various financial instruments.

Here are the contents of any course on the Interest Rate Futures:

-- Interest Rate Futures terminology and definitions
-- Characteristics & Types of interest rate futures
-- Interest Rate Futures contracts as against the securities
-- Interest Rate Futures Risk management Methods and Procedures
-- Treasury Bond and Note for Interest Rate Futures Contracts

-- Interest Rate Futures - Underlying/deliverable instrument

-- Interest Rate Futures Basket delivery
-- Interest Rate Futures Conversion factors
-- Cheapest to deliver Interest Rate Futures and
-- Interest Rate Futures with regard to the implied repo rate
-- Implied put option for Interest Rate Futures
-- Trading in Interest Rate Futures
-- Risk management methods & applications for Interest Rate Futures
-- Interest Rate Futures and the Eurodollar Futures

-- Underlying instrument - Eurodollar deposit

-- Libor (London Inter Bank Offered Rate) - its affect on Interest Rate Futures
-- Methods of Interest Rate Futures Price Valuations - Index or discount pricing method, point values method and basis points method
-- Cash settlement only contracts
-- Cash market basis of final settlement price
-- Swaps for Interest Rate Futures


-- Terminology and definitions
-- Swap contract features for Interest Rate Futures
-- Interest rate swap contract cash flows and risks
-- Other types of interest rate swaps - amortizing, accreting and basis swaps
-- Risk management applications
-- Swaptions and Interest Rate Futures