SOFR Futures

SOFR Futures Markets

The Secured Overnight Financing Rate (SOFR) is a benchmark interest rate that reflects the cost of borrowing cash overnight, collateralized by U.S. Treasury securities. As a replacement for LIBOR, SOFR is critical for a wide range of financial products including loans, mortgages, and derivatives. The adoption of SOFR is a significant step towards a more transparent and reliable financial benchmark system.

SOFR Futures Contract Specs

Contract Symbol	Contract Units	Price Quotation	Trading Exchange	Trading Hours	Tick Value
SR3	$2,500 x contract-grade IMM Index	contract – grade IMM Index = 100 minus R	CME GLOBEX	17:00 – 16:00	0.0025 IMM Index points (1/4 basis point per annum) = $6.25

SOFR Futures History

SOFR futures were introduced as a financial instrument to provide market participants with a tool to manage interest rate risk associated with fluctuations in the overnight borrowing rates. Since their introduction, these futures have become a pivotal component of the interest rate futures market, offering a robust alternative to previous benchmarks and helping to shape expectations around the Federal Reserve’s monetary policy moves.

SOFR Futures Facts

• Contract Size: Each contract represents the expected weighted average of SOFR rates over a three-month period.
• Settlement: SOFR futures are cash-settled based on the calculated average rate at the end of the contract term.
• Trading Utility: These futures are utilized for hedging against short-term interest rate fluctuations and for speculative purposes, reflecting market expectations for future rates.

Trading SOFR Futures

Trading 3-month SOFR futures involves speculating on or hedging against changes in the overnight rates. Available on major exchanges like the CME, these futures offer high liquidity, making them easy to trade. Market participants including banks, hedge funds, and corporate treasurers use SOFR futures to manage exposure to interest rate movements and to align their interest rate risk management strategies with broader market conditions. This makes SOFR futures an indispensable tool for financial planning and risk management in today’s economy.