Financial futures have grown explosively since being introduced at the Chicago Mercantile Exchange (CME) in 1972. What is the single largest segment of the growth? CME interest rate products, particularly Eurodollar futures. Launched on December 9, 1981, Eurodollar futures have evolved into one of the world's most popular and innovative contracts, with flexibility and adaptability that are unsurpassed. The Contracts' exceptional growth has fostered nonstop enhancements, resulting in a Eurodollar complex today that bears little resemblance to that of only several years ago.
Eurodollars are simply U.S. dollars on deposit in commercial banks outside of the United States. The Eurodollar market has burgeoned over the past 30 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. Eurodollar deposits are direct obligations of the commercial banks accepting the deposits. They are not guaranteed by any government. Although they represent low-risk investments, Eurodollar deposits are not totally risk-free.
Schwab Futures offers trading in Eurodollar futures at the 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, 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.
Eurodollar futures trade electronically virtually around-the-clock 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 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.