You must have never thought about trading Eurodollars! Eurodollars are an ideal way to profit from a change in the short term interest rate. Trading Eurodollars does not require a large margin requirement making them ideal for retail traders. With these futures contracts, a retail trader can make a fairly good return in a short period of time. Now, the best time to trade Eurodollars is when the market is expecting an interest rate change in the near future something like close to an FOMC Meeting.
You will be wondering what a Eurodollar is. A Eurodollar is a dollar denominated deposit held in a non US Bank. A Eurodollar contract give you control over $1 million and is a reflection of three month LIBOR (London Interbank Offer Rate) rate on $1 million offshore deposit.
The margin requirements for these contracts are fairly low making them good instruments to trade even by small traders and ivnestors. Initial maintainance margin is something between $750 and $1,000 so with this small amount you can trade a regualar Eurodollar contract. These contracts get traded on the CME (Chicago Mercantile Exchange) and the expiration months are March, June, September and December. Either you settle them or you renew them, it is upto you at the expiry. These contracts can also be traded electronically at the GLOBX Electronic Platform making them highly attractive to the day traders.
While trading Eurodollars, you need to take the following points into account: 1) Check the overall trend of the market. 2) Consider when the market is overbought or oversold. 3) Decide how much you are willing to risk before you enter the trade.
Now,what is the best times to profit from trading Eurodollars. The best times are those when an interest rate change is expected in the near future. This can be close to the FOMC Meeting or even close to a scheduled G7 or G8 or even G20 meeting that is expected to make major decisions about the global finanical regulation. Eurodollars prices are quoted in terms of an index and are an important quote in the global business and finance.
When you trade futures, you talk of a tick. One tick is worth this much. In case of Eurodollars, 1 tick is equal to $25. So when you are trading them and the contract rises by 5 ticks, you make $125. In the same way, if the contract falls by 4 ticks, you lose $100. So, just like other futures contracts, you can make money or lose money pretty fast. These contracts are used to trade short term interest rates like the LIBOR in the international markets.
Eurodollars trade almost round the clock. So great gains from an intraday session can easily get wiped out or reduced significantly if some big event happens overnight. All futures contract that get traded on GLOBEX get affected in almost the same way. You can lose money trading Eurodollars just as you can when you trade other futures contracts. But first do paper trading to gain some experience!
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