STIR Futures

STIR Futures : Trading Euribor and Eurodollar futures

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Short-term interest rate futures (STIR futures) are one of the largest and most liquid financial markets in the world. The two main exchange-traded contracts, the Eurodollar and Euribor, regularly trade in excess of one trillion notional dollars and euros of US and European interest rates each day. STIR futures have some very unique characteristics, not found in most other financial products. Their structure makes them very suitable for spread and strategy trading and relative value trading against other instruments such as bonds and swaps. "STIR Futures" is a handbook for the STIR futures market. It clearly explains what they are, how they can be traded, and where the profit opportunities are. The book has been written for both aspiring and experienced traders looking for a trading niche in a computerised marketplace, where all participants trade on equal terms and prices.This fully revised and updated second edition now includes: details on the effects of the financial crisis on STIR futures pricing and trading; an in-depth analysis of valuation issues, especially the effects of term and currency basis when relatively traded to other financial products; a new section on using STIR futures to hedge borrowing liabilities; an in-depth analysis of relative value trades against bond and swap derivatives; and trading synthetic FX swaps using STIR futures.
Plus updated case studies and examples throughout and an even better explanation of the basics. This book offers a unique look at a significant but often overlooked financial instrument. By focusing exclusively on this market, the author provides a comprehensive guide to trading STIR futures. He covers key points such as how STIR futures are priced, the need to understand what is driving the markets and causing the price action, and provides in-depth detail and trading examples of the intra-contract spread and strategy markets and cross-market relative value trading opportunities. An essential read for anyone involved in this market.
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Product details

  • Paperback | 280 pages
  • 156 x 234 x 15mm | 400g
  • Petersfield, United Kingdom
  • English
  • Revised
  • 2nd Revised edition
  • black & white illustrations
  • 0857192191
  • 9780857192196
  • 512,986

Table of contents

About the Author Preface Introduction - STIR Futures - Quick Summary 1. STIR Futures Introduction to STIR Futures - What are futures? - What are STIR futures? - Where and how are they traded - Contract structure and general specifications - Contract specifications for the Eurodollar contract - Buying and selling STIR futures - Buying and selling STIR futures as notional borrowings and lendings - Introduction to spreads and strategies - A typical trader's screen - The advantages of trading STIR futures compared to other financial products STIR Futures Pricing - Spot and forward rates STIR Futures Valuation - Basic pricing concepts - Valuing Euribor futures - Advanced pricing concepts Hedging with STIR futures - A simple hedging example The Drivers of STIR Futures Prices - The changing shape of the futures curve - The curve is constantly changing - Liquidity considerations of the micro-curve - Seasonal influences - Price-sensitive effects - Correlated markets - Uncorrelated markets - Event risk - Systemic risk contagion Conclusion 2. Mechanics of STIR Futures Accessing the Markets - Clearing and settlement - Margin requirements - Comparison of futures settlement with equities and CFDs Fixed and variable costs - Fixed costs - Variable costs Liquidity and rebate schemes - STIR Liquidity Provider (LP) - STIR Discount Schedule - New Market Participants Scheme (NMP) - International Incentive Program (EIP) - New Trader Incentive Program (NTIP) The choice of Clearing Member or Trading Arcade - Customer classification - Financial probity - Financial protection - Capital requirements and commissions - Technological ability - Trading arcades Software and hardware - Trading algorithms - Implied pricing functionality - Implied prices - traders' friend or foe? Selecting an ISV - Price displays - Two or one-click dealing - Risk management considerations Influences Regarding the Trader's Choice of Markets and Contracts - Domicile and time zones Remote Trading - Internet - Virtual private network (VPN) - Digital private circuit - Connectivity speed 3. Trading STIR Futures Trading Opportunities: The Two Trades - Outright trading - Spread trading Spread Trading: Intra-Contract Spreads - Calendar spread - Butterfly spread - Condor spread - Introduction to strips, packs, bundles and stacks Spread Trading: Inter-Contract Spreads - Price sensitivity - The swap spread - Trading swap spreads using bonds and bond futures against STIR futures - Introduction to basic bond pricing - Introduction to bond futures - The TED spread - OIS/LIBOR Spreads - Spreading STIR futures against swap futures - Spreads between international STIR futures - Summary - when to use the strategies 4. Trading Considerations for STIR Futures Zero-Sum Game - Know the Players - Players - Hedge funds - Banks - Hedgers - Brokers - Independent traders/liquidity providers - Flippers/predatory algorithms - High frequency and algorithmic trading Supporting cast - 'Winning' trading systems - The pundits How to Play - Specialisation - Key characteristics and considerations - Trader's nemesis Game Play - The discovery process - Trigger point - Guide to technical indicators - Momentum and strength indicators Endgame A Day in the Life of a STIR Futures Trader Ten Rules For Trading STIR Futures Appendices STIR Futures Contracts Contract Specifications For Eurodollar, Euribor, Short Sterling and Euroswiss Exchanges Some Clearing Members Independent Software Vendors (ISV) Trading Arcades Key Policy Rate Changes (EUR, USD) Bibliography Index
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About Stephen Aikin

Stephen Aikin has been a derivatives trader for over 20 years and has worked as a professional training consultant for the last five, delivering finance and derivatives courses to leading institutions in London, Zurich and New York. He started his career working for several investment banks. In 1988 he became a member of the London International Financial Futures Exchange (Liffe), where he started trading STIR futures on German interest rates. Stephen has specialised in relative value trading - both intra- and inter-contract - and has experienced consistent profitability over 20 years. He is educated to MSc (Finance) level and holds several professional qualifications in the finance sector.
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