Given the increase in Fed Rate Expectations Latest With the Fed Funds Futures

Late last week , John Kicklighter of DailyFX wrote in his analysis that the Fed Funds Futures are now taking into account the interest rate the Federal Reserve ( Fed rate ) will be raised in July 2016. This is not the first time analysts or the news agency cited "Fed Funds Futures ". But, you know, what the Fed Fund Futures? Futures contracts that one is more often mentioned, and it's good trader knows.

Hedging Tool And Speculation

Fed Funds Futures contracts were first introduced by the Chicago Board of Trade in October 1988 as an instrument to hedge changes in the Fed rate. His full name is the "30 - Day Federal Funds Futures Contract "

Since then, the Fed Funds Futures contracts become one of important risk management tool for institutional traders who want to do hedging or speculation Federal Reserve policy-related ( US central bank ) of short-term interest rate changes. A trader can buy or sell futures based on expectations of Fed rate changes. If traders think the Fed will raise interest rates in the future , then they will do a 'sell' in the futures. And if they predict the Fed will cut interest rates, then they will "buy" the futures contracts.

Contracts sold on a monthly basis (30 days), so that each contract will expire on the last business day in related contracts. While the formation of the price calculated on the basis of 100, so the price of the contract is 100 minus the expected Fed rate in the contract. For example traders expect Fed rate will rise 0.4 percent in July 2016, the Fed Funds futures contract price in July 2016 is (100-0.4) or 99.6. And if traders expect Fed rate will rise 0.5 percent in September, the price of the September contract will change again so (100-0.5) or 99.5.

Given the increase in Fed Rate Expectations Latest

It is important to note here that the Fed Funds Futures show what is predicted by institutional traders in the future (expectations), and does not indicate the amount of Fed rate at this time. Retail forex traders like we did not have a chance to trade the Fed Funds Futures, but the observed changes in assets this one can help us understand how the market expectations of Fed rate hikes .

Well, after knowing it, we can find out how John Kicklighter of DailyFX can conclude that the "Fed Funds Futures are now taking into account interest rates the Fed will be raised in July 2016". See chunks of data tables Fed Funds Futures date ( October 20, 2015 / GMT + 7 ) below :

Ignore the other numbers except month contract in the "Month" and the numbers in the column "Last". In December 2015, 99 830 visible figures. That is, the institutional traders expect the Fed rate in December will be at 0:17 percent. Due to the current actual interest rate the Fed is at 0-0.25 percent, it means that market participants do not expect there will be a rate hike in December 2015.

Meanwhile, if we sequence again down to a month in July 2016, 99 635 figure appears. That means that market participants forecast interest rates in that month will be at 0365 percent. Look here there are predictions of an increase of 0.115 per cent of the actual interest rate the Fed current.

Fed Funds Futures is one of the data that is often a reference to analysts and traders in relation to US interest rates, and could be a good material in understanding market expectations. In addition, amendments are also frequently cited by Reuters and Bloomberg. If you want to observe their own, then the table can be found at the CME Group's web site.