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 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.