Federal Funds Futures

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About CBOT Federal Funds Futures

In October of 1988, the Chicago Board of Trade (CBOT) introduced its Fed Funds futures contract, giving traders a mechanism for speculating or hedging against changes in Federal Reserve policy and its attendant ripple effects. The CBOT fed funds contract represents the average daily fed funds effective rate for a given calendar month as reported by the New York Fed in its weekly H.15 release.

Because the Federal Open Market Committee uses the fed funds rate to set monetary policy, it is the benchmark money market rate in the United States financial system. It affects short-term financing costs throughout the economy – bank loans, commercial paper, and retailers' inventories, all feel the impact of changes in the fed funds rate. Not only is the fed funds rate the benchmark for U.S. money markets, it is one of the most important rates in the international financial system because the U.S. dollar is the world's reserve currency. Indeed, many sovereign nations have established currency boards to directly tie their nations' currency to the dollar.

Because CBOT Fed Funds futures tend to be highly correlated with other short-term interest rates, they can be used either speculatively to anticipate changes in monetary policy, or they can be used more conservatively to hedge inventory financing risk across many different markets. As a result, CBOT Fed Funds futures can serve a wide spectrum of potential users and uses.

CBOT Federal Funds Futures Specifications

• 30-day Federal Funds futures, Chicago Board of Trade, symbol FF. Contract size is $5 million, with a minimum tick of $20.835 per 1/2 of one basis point (1/2 of 1/100 of one percent of $5 million on a 30-day basis rounded up to the nearest cent.)
• Fed Funds trade electronically virtually around-the clock on the eCBOT system, from 7:01 PM EST until 5:00 PM EST the following day.
• Available Trading Months: First 24 calendar months