Question

1. How do you trade interest rate futures and why?

Answer 1

How to trade in interest rate futures.

We assume that one have a housing loan and he expect that RBI Policy will raise the repo rate in the coming 6 months, thus signalling an increase in the loan rates by the bank.

In order to offset the same of rising EMI burden when interest rates rise, one can sell the interest rate futures contract. If the rates did actually move up over the upcoming 6 months, then the price of these futures contracts will decline and we can then purchase them back again.

The reason for trading on interest rate future is to reduce the increase interest rate payment in future.