Electronic, or automated, trading of interest rate swaps has created an easily accessible method for controlling interest rate risk as well as for hedging and speculating on interest rate movements. With increasing volume and improved trading platforms this market is destined to become more popular for individual traders along with larger institutional users. Advantages of exchange-traded interest rate swap futures include standardization and elimination of most counterparty credit risk. The structure of the Eurodollar yield at any maturity is composed of three segments: the US. The yield structure of a five-year interest rate swap also has three parts, but it varies from the Eurodollar structure. Because of the difference in pricing there are changes in the spread between the prices of interest rate swap futures and Eurodollar futures. Over time, increased trading volume in all maturities of interest rate swap futures should result in improved hedging and trading possibilities.
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