How do bond futures work?

Bond futures, essential financial derivatives, bind the contract holder to buy or sell a bond on a set date at a predetermined price. Traded on futures exchanges, these contracts are facilitated through brokerage firms. The terms, encompassing price and expiration date, are established during the transaction.

What is a bond futures contract?

A bond futures contract trades on a futures exchange and is bought and sold through a brokerage firm that offers futures trading. Bond futures are used by speculators to bet on the price of a bond or by hedgers to protect bond holdings. Bond futures are indirectly used to trade or hedge interest rate moves.

What is bond futures trading?

The price volatility of the underlying bond, coupled with leverage in margin trading, can amplify losses, creating a financial rollercoaster that demands a strategic approach and risk management. The epicenter of bond futures trading is the Chicago Board of Trade (CBOT), nestled within the Chicago Mercantile Exchange (CME) Group.