What are Eurodollar futures?

Eurodollar futures are interest-rate-based financial futures contracts specific to the Eurodollar, which is simply a U.S. dollar on deposit in commercial banks outside of the United States. Since their launch in the early Eighties, Eurodollar futures have evolved into one of the world's most popular and innovative contracts, with flexibility and adaptability that are unsurpassed.

Start trading Eurodollar futures for just $2.25 per contract pricing.

Rise in popularity

The rise in popularity of Eurodollar futures coincided with a Eurodollar market that has burgeoned over the past 40 years, as the Dollar has become the world's dominant currency for global trade and finance. Eurodollar deposits play a major role in the international capital market. The interbank market for immediate (spot) and forward delivery of offshore Dollars is deep and liquid, giving banks the ability to fund Dollar loans to foreign importers without incurring currency exchange risks. When considering Eurodollar futures vs. other interest rate-based futures like U.S. bonds and notes, keep in mind that Eurodollar deposits are low-risk but not risk-free, as they are direct obligations of the commercial banks accepting the deposits, however are not guaranteed by any government.

How to trade Eurodollar futures

Schwab Futures offers trading in Eurodollar futures at the Chicago Mercantile Exchange (CME). CME interest rate futures contracts are traded using a price index, which is derived by subtracting the futures' interest rate from 100.00. For instance, an interest rate of 5.00 percent translates to an index price of 95.00 (100.00-5.00 = 95.00). Given this price index construction, if interest rates rise, the price of the contract falls and vice versa.

Eurodollar futures contract specifications

Considering trading Eurodollar futures? Here are the Eurodollar futures contract specifications.

Eurodollars futures contract specifications.
Exchange Chicago Mercantile Exchange, ED
Contract Size $1 million ($1,000,000)
Minimum Tick Size and Value 0.0025, worth $6.25 in the expiring front-month contract, and 0.005 worth $12.50 in all forty quarterly expirations.
Trading Times Eurodollar futures trade electronically on the CME Globex® trading platform, from 6:00 p.m. U.S. ET until 5:00 p.m. U.S. ET the following afternoon, Sunday through Thursday.
Principal Trading Months Principal trading months for Eurodollar futures are March, June, September, and December. Following the expiration of a quarterly Eurodollar futures contract, a fortieth (40th) quarterly contract becomes available to trade the following business day.

At Schwab, you also get access to advanced trading platforms and education, where you can take advantage of market research, real-time Eurodollar futures quotes, and other specialized tools.

Why Euro

Eurodollar futures are based on the rate of interest paid for Eurodollar time deposits, which is equal to the 3-month LIBOR interest rate. That means that U.S. Fed policy decisions can significantly affect Eurodollar prices, making Eurodollar futures suitable for hedging against or speculating about interest rates.

Banks and institutions looking to hedge against interest rate/yield curve risks can utilize Eurodollar futures as an effective means to secure a short-term interest rate for future lending or borrowing needs. 

Traders can use Eurodollar futures to speculate on the movement of short-term interest rates by expressing their opinion about where rates are headed. Additionally, the Eurodollar’s high liquidity combined with relatively low levels of intraday volatility create opportunities for speculative traders attempting to capture the bid-ask spread. Other speculative Eurodollar strategies include spreading against multiple contracts and interest rate arbitrage.

It is important to understand the benefits and risks involved with Eurodollar futures before placing a futures trade. Compared to traditional investments, with Eurodollar futures you can trade nearly 24 hours a day during the trading week and take advantage of trading opportunities regardless of market direction. Eurodollar futures also provide the ability to trade with greater leverage and allow a more efficient use of trading capital. However, trading leveraged products like Eurodollar futures also involves the risk that losses can exceed the amount originally invested and may not be suitable for all investors.

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