Ever since World War II the amount of U.S. dollars abroad sharply increased. This meant that foreign banks had U.S. dollars in their custody and their jurisdiction. Today, the eurodollar is similarly not under the jurisdiction of the Federal Reserve because it is a U.S. dollar time deposit held in foreign banks. There are higher margins on the Eurodollar as a result of fewer regulations. A common use for Eurodollar futures contracts is for a company or a bank to secure the current interest rate on money it expects to borrow at a later time.
Eurodollar Contract Specifications
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Eurodollar Facts
Eurodollar futures represent the most traded of the interest rates around the world. Eurodollar futures can be used as a hedging tool for rate fluctuations on Eurodollars themselves. Several trading strategies can be employed with Eurodollar futures including bundles, pack, butterflies and the ability to hold short and long positions.
85% of the Eurodollar futures are traded on CME Globex Platform. This electronic trading offers real time market prices and transparency.
It is important to note that Eurodollars are low risk, but not risk free investments.
Source: CME
Last updated May 2013.