What is interest rate futures trading?
In a nutshell, an interest rate future is a financial derivative. For the uninitiated, a derivative is a financial contract the value of which is ‘derived’ from a long-standing security such as a stock or a bond, or even an asset, or a market index. So an interest rate future is a financial derivate based on an underlying security, actually a debt obligation that moves in value as interest rates change. That is, buying an interest rate futures contract will allow the buyer to lock in a future investment rate. When the interest rates scale up, the buyer will pay the seller of the futures contract an amount equal to the profit expected when investing at a higher rate against the rate mentioned in the futures contract. On the flip side when the interest rates go down, the seller will pay off the buyer for the poorer interest rate when the futures contract expires. According to experts, the interest rate futures market had priced the futures so that there is sparse room for arbitrage. Inte
