Interest Rate Futures are standarised interest rate Derivative contracts traded on a recognised Stock Exchange to buy and sell a notional security or any other interest-bearing instrument or an Index of such instruments or interest rates on a specified date, at a price determined at the time of the contract.
Interest rate risk affects not only the financial sector, but also the corporate and private sectors. Banks, insurance companies, primary dealers and provident funds bear a major portion of the interest rate risk on account of their exposure to Government Securities. These entities need a credible institutional hedging mechanism. Interest rate Derivative products are the primary instruments available to hedge interest rate risk. Firms that may suffer losses due to fluctuations in interest rates (such as banks, brokerage houses, insurance companies) use these contracts to hedge (reduce risk). Speculators use these contracts to bet on lower or higher market interest rates in the future. The value of the contract rises and falls as market interest rates rise and fall.
Interest Rate Futures, Derivative instruments with linear pay-offs, provide benefits similar to other products traded on Exchanges.
Standardisation – through standardisation, the Exchanges provide market participants with a mechanism for gauging the effectiveness of different positions and strategies.
Transparency – transparency, efficiency and accessibility are accentuated through the real-time online dissemination of prices available for all to see and daily Mark-to-Market.
Counter-party risk – the credit guarantee of the clearing corporation eliminates counter-party risk, thereby increasing the capital efficiency of the market participants.
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More detailsRisk warning: CD(Currency Derivatives)Trading carries a high degree of risk to your capital and it is possible to lose more than your initial investment. Only speculate with money you can afford to lose. As with any trading, you should not engage in it unless you understand the nature of the transaction you are entering into and, the true extent of your exposure to the risk of loss.These products may not be suitable for all investors, therefore if you do not fully understand the risks involved, please seek independent advice.
SEBI Registration Nos: NSE CDS INE231376935, MCX-SX INE261383637, USE INE271381233
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