Question

How do you trade interest rate futures and why?

Answer 1

Interest rate futures are futures contracts based on interest-bearing financial instruments. This futures contract can be cash-settled or it can involve the delivery of the underlying security. Like other futures, this is an agreement for the long position to receive the interest earned on a notional amount and the short position to pay this amount. Since the value is based on an underlying asset, an interest rate future is considered a financial derivative

So it can be traded as any currency trading or forex trading as all the aspect of futures remain same for trading

Interest rate futures are most often used for hedging purposes. For physically delivered futures, this can allow an investor to lock into the interest-bearing security. At the expiration date, they will be delivered the interest-bearing security.

Interest rate futures can also be used by investors holding a long position in a bond. These investors face the risk of rising interest rates. As interest rates rise, the value of bonds will fall. Since bond futures contracts use bonds as the underlying asset, these will also fall in value as interest rates rise. Investors who are worried about a rising interest rate can sell interest rate futures to counter the loss in value of bonds they are holding.

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From Mona....