Eurodollar Futures Introduction

This video gives an overview of what the eurodollar futures are.  He discusses the difference between eurodollar futures and forward contracts.  A foward contract is done through the over the counter market where an agreement is made between two counteThis video gives an overview of what the eurodollar futures are.  He discusses the difference between eurodollar futures and forward contracts.  A foward contract is done through the over the counter market where an agreement is made between two counterparties.  Eurodollar futures, on the other hand, are traded on a regulated futures exchange.  The Eurodollar futures trades on the Chicago Mercantile Exchange (CME) and trades in increments of $1 million dollars with a 3 month maturity.  

The position is constructed such that 1 basis point is worth $25 and a decline in the futures contract will yield a gain of $25 while an increase will yield a loss.

Eurodollar futures essentially allow the trader to lock in a LIBOR interest rate at some point in the future.  Libor can be estimated by subtracting the eurodollar quote from 100.  This will give you a very close estimation.  Quotes are displayed in a annual format, the speaker discusses how to convert this into a quarterly rate.