Eurodollar Futures

Eurodollar Futures Market

Eurodollar futures are time deposits denominated in U.S. dollars and held at banks outside the United States. Often confused with the currency pair EUR/USD or euro FX futures, they are not related to Europe’s single currency, the Euro, which was launched in 1999.

Eurodollar Market History

The Eurodollar futures contract was launched in 1981 by the Chicago Mercantile Exchange (CME), as the first cash-settled futures contract. Reportedly, people camped out the night in front of the exchange before the contract’s open, flooding the pit when the CME opened the doors. That trading pit was the largest pit ever, nearly the size of a football field, and quickly became one of the most active on the trading floor, with over 1500 traders and clerks coming to work every day on what was then known as the CME’s upper trading floor.

Eurodollar Market Facts

The Eurodollar futures market includes U.S. and foreign corporations, individuals and foreign governments. London is a major Eurodollar center because its markets operate during the American and Asian markets. It is one of the world’s primary international capital markets. Eurodollar futures are a way for companies and banks to lock in an interest rate today, for money it intends to borrow or lend in the future. Companies use Eurodollars to settle international transactions, invest excess cash, to offer short-term loans and finance imports and exports.

Eurodollar Futures Trading

• Most Eurodollar futures trading occurs at the CME, followed by Singapore and Europe.
• A Eurodollar future is a contract on a three-month Eurodollar deposit of one million U.S. dollars. Final settlement at expiration is based on the value of three-month British Banking Association (BBA) Libor.
• If a Eurodollar future is quoted at 94.25, this corresponds to an interest rate of 5.75 percent.
• Eurodollar futures contracts expire every March, June, September and December out to ten years. Additionally, there are contracts expiring in the upcoming four months not covered by the quarterly expiration.
• Eurodollar futures are widely used for hedging fixed income obligations, especially fixed income derivatives. The CME allows trading in entire strips called bundles, a strip of consecutive quarterly contracts (one futures contract for each expiration.) Bundles generally start with the front quarterly contract.

Eurodollar Futures Contract Specifications