Eurodollar

The Eurodollar futures contract is the most widely traded and versatile interest rate futures product in the world. It provides a valuable, cost-effective tool for hedging interest rate fluctuations on Eurodollars – U.S. dollars deposited in commercial banks outside the United States. Eurodollar deposits play a major role in the international capital market, and have long served as a benchmark interest rate for corporate funding.

Eurodollar futures provide a way to:

• Hedge short term interest rate risk
• Execute a variety of trading strategies, such as Butterflies, Packs and Bundles
• Express a view on the direction of interest rates

Things to know:

• Eurodollar futures reflect the London Interbank Offered Rate (LIBOR) for a 3-month, $1 million offshore deposit maturing at some point in the future
• More than 85% of Eurodollar futures now trade electronically on the CME Globex platform
  • Available virtually around the clock, around the world
  • Complete price transparency and anonymity
  • Market prices universally available in real time
• Product also trades side-by-side on the CME Group trading floor during open outcry trading hours
• CME Clearing clears and settles all trades and guarantees counterparty creditworthiness

• Flexibility
  • Contracts extend over 10 years to address a wide range of objectives
  • Additional products offer expanded flexibility:
    • Eurodollar 5-Year E-mini Bundles
    • Eurodollar Bundles
    • Eurodollar Packs
    • Serial Eurodollars
    • Weekly Mid-Curve Options
    • Treasury Matched Mid-Curve Options 
• Concentrated liquidity
  • Consistently tight bid/ask spreads and lower transaction costs
• Price transparency
  • Open, fair and anonymous trading environment
  • Market prices universally available in real-time
• Variety of trading opportunities, including:
  • Outright long or short positions
  • Spreading against other instruments
  • Hedging and arbitrage strategies
• Ease of trading
  • Electronic trading on CME Globex provides
    • Reduced connectivity costs
    • Increased accessibility
    • Fast, efficient trading
• Implied electronic spread functionality
  • 3-, 6-, 9-, 12-, 15- and 18-month Calendar spreads are implied along the entire length of the Eurodollar futures curve

• 3-, 6- and 12-month Butterfly spreads are implied along the entire length of the Eurodollar futures curve
• Pack Spreads implied through the first Orange contract 

More about Eurodollars

• Eurodollar deposits are direct obligations of the commercial banks accepting the deposits
  • They are not guaranteed by a government entity
  • Although they represent low-risk investments, Eurodollar deposits are not risk-free
• Eurodollar futures and options lead the industry with open interest exceeding 40 million and average daily volume of 3.0 million [update with end 07 data]
• Through December 2007, Eurodollar futures and options on futures set a record pace, trading over 500 [update with end ‘07 data] million contracts
• Since CME launched Eurodollar futures in 1981:
  • They have evolved into one of the world's most innovative and popular contracts
  • They are now the most actively traded futures contract in the world, with open interest recently surpassing the X million mark
  • Due to their exceptional adaptability and versatility, they continue to evolve due to nonstop enhancements
  • They now offer even more trading opportunities than when they were first launched
    

©2008 CME Group, Inc.