Interest rate futures values rises when rates fall and decrease when rates rise. They're used to hedge against interest rate risk or to make a profit from changes in rates.
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Using these derivatives, traders can lock in a future interest rate, protecting themselves from rate volatility.
If you have a fixed rate mortgage you will lose out if rates fall. If rates drop you will be paying too much interest. If you buy an interest rate future its value will increase if rates decrease, refinancing you at the lower rate.
If you own a bond portfolio you will lose out if rates rise. However if you take out a short position in futures then this position will offset losses in your bond portfolio should rates increase.
In addition to managing risk and profiting from rate changes, interest rate futures offer a high liquidity and transparency. They are traded on regulated exchanges, providing traders with a transparent and efficient market to buy and sell.
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This is not investment advice. Lucidate is not an investment advisor. Futures prices can rise and fall. Always consult with a regulated financial adviser before making investment decisions.
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