Financial futures fall into three broad categories – those tied to interest rate or credit instruments, stocks or stock indexes, and global currencies, also known as fx or forex, short for foreign exchange. Some of the most popular are outlined briefly here.

Interest Rate Products

In simple terms, interest rates reflect the price of money. And like all goods and services, interest rates are determined mainly by supply and demand. A greater demand for money is likely to drive up the price of money, reflected in the interest rate. Demand depends on factors such as the nation’s economic health, the level of government borrowing to support budgets, and societal perception of inflation. Also, a nation’s central bank can manipulate interest rates — rates are adjusted upward in an attempt to slow the economy, while rates are adjusted downward to act as a stimulus.

Interest rate futures products encompass a range of short-term instruments, such as the Federal funds rate (an overnight inter-bank lending rate), to long-term, such as the 30-year U.S. Treasury bond. The relationship between short- and long-term interest rates along a broad time continuum is called the yield curve. Typically, the yield curve has an upward slope, with a longer period of lending risk resulting in higher rates for long-term instruments.

Some of the most popular U.S. interest rate futures products and their features are detailed below.

Eurodollar Futures

Eurodollars are U.S. dollars on deposit in commercial banks outside the country, mainly in Europe. Eurodollars are commonly used to settle international transactions and are not guaranteed by any government, but rather, by the obligation of the bank holding them. Eurodollar futures track the interest rate on 90-day Eurodollar deposits, and frequently top the list of the world’s most popular contract in futures trading.

The CME Group’s Eurodollar futures contract reflects the London Interbank Offered Rate (LIBOR) for a three-month, $1 million offshore deposit. The exchange lists a total of 40 quarterly futures contracts, spanning 10 years, plus the four nearest serial (nonquarterly) months. This contract is frequently used as a barometer for monetary policy implications, with a cash yield that has a close tie to the Federal funds rate. Therefore, economic statistics that may alter monetary policy have a big influence on Eurodollar futures prices.

U.S. Treasury Futures

Because of the strength and stability of the U.S. government, which has never defaulted on debt, U.S. Treasury instruments are often described as “safe-haven” financial investments. Indeed, when strong buying occurs in the Treasury futures market because of some type of global or economic shock, it’s often called a “flight to quality” among the part of global investors.

U.S. Treasury bonds are long-term debt issues of the U.S. government with maturities of more than 10 years. U.S. Treasury notes are medium-term obligations of the U.S. government with maturities that range from one to 10 years. Futures trading occurs on the 30-year bond and the two-, five- and 10-year Treasury notes. U.S. economic strength, inflation and monetary policy are the major influences on the pricing of Treasury futures. Demand for money in a strong and/or inflationary economy typically causes cash Treasury yields (i.e. the interest rate paid) to rise and the price of the futures market to fall, while conversely, a weak economy typically causes yields to fall while futures prices rise.

Treasury bills are U.S. government debt issues with maturities of up to one year. T-bills are the most widely issued government debt security and are auctioned weekly and monthly. The T-bill interest rate is considered the risk-free rate of variable return to investors. Because of their short durations, T-bills are considered money-market instruments. Treasury bills do not pay periodic interest. Instead, they are sold at a discount from their face value, and upon maturity, the investor receives the face value. The difference between the face value and the price at which it was sold is treated as interest.

Foreign Government Debt Futures

Similar to the U.S. government, most foreign governments also issue short- and long-term debt and many have corresponding futures markets listed at exchanges around the globe. Europe’s leading futures exchanges, Eurex and Euronext.liffe, offer many popular euro-based contracts including euro-bund futures, which are long-term debt instruments, and three-month euribor futures, which are short-term instruments.

Prior to the start of the European Monetary Union in 1999, German government bonds were the recognized benchmark for the European government bond market due to their liquidity, credit rating, a record of stable German monetary policy and Germany’s market size and depth. Germany had been considered the “safe haven” of Eurozone issuers, but the recent integration of Europe’s markets with the EMU has created new debt instruments and market dynamics.

Swap Futures

Swaps are generally defined as agreements between two parties to exchange periodic interest payments. They have become an interest rate benchmark and are an innovative means for those seeking ways to transfer financial risk. Swap futures are traded at the CME Group and are designed to provide investors involved in U.S. dollar-denominated swaps with new trading and hedging opportunities. Investors can trade five-year, seven-year, 10-year, and 30-year swap futures contracts.

Forex Futures

When it comes to international investing, investment managers, corporations and private investors trade currency futures, also known as foreign exchange, forex or simply FX, to manage the risks and capture potential opportunities associated with forex rate fluctuations.

Trading a nation’s currency doesn’t occur in a vacuum; you don’t actually trade one currency but a pair based on its relationship to another currency. A number of factors go into determining the “strength” or “weakness” of a currency vs. another, but it usually comes down to comparing one nation’s economy to another’s. Generally, expanding economies have stronger currencies while recessionary economies have weaker currencies.

Factors influencing a currency’s value include gross domestic product (GDP) as well as the trade balance between countries. The current account balance and money flows from one country to another reflect a currency’s supply and demand, so futures traders are always watching each country’s trade balance to see changes in surpluses/deficits. Other factors influencing currency valuations include fiscal and monetary policies, including interest rates on government-issued securities, and political leadership.

The CME Group is the leader for forex futures trading in the United States, and offers a variety of contracts with pricing based on a nation’s respective currency value vs. the U.S. dollar. Traders can also access cross-rate futures contracts, which allow a value comparison of a currency against another currency besides the U.S. dollar. For example, you can trade futures on the Australian dollar vs. the Canadian dollar, or British pound vs. the Japanese yen.

To learn more about forex pricing and the differences between trading cash forex and futures forex, or to translate futures forex prices into cash forex prices, view an interactive guide from CME Group, E-Quivalents Demo.

Read an overview from CME of the differences in FX trading between cash FX and FX futures markets here.

Stock Futures

Some of the most popular futures contracts are related to the equity markets. Most major economies with a vibrant stock market also have a futures contract on a stock index that represents that particular economy. For example, in the United States, futures contracts are available on the Dow Jones Industrial Average as well as the broader Standard & Poor’s 500 Index and the technology-oriented Nasdaq-100 Index. Other countries have similar contracts, such as the FTSE-100 in the United Kingdom, the Hang Seng in Hong Kong and the CAC 40 in France. The Dow Jones Euro STOXX 50 covers selected stocks in the euro economy.

Fundamental factors influencing stock markets encompass factors affecting companies’ earnings potential, such as news about the global and domestic economy, inflation, currency values, politics and interest rates.

Index Futures

Stock index futures contracts were introduced in the United States in 1982, nine years after listed options investing began at the Chicago Board Options Exchange, the securities offshoot of the Chicago Board of Trade. Interestingly, the CBOT had come up with the idea of futures on stocks as a way to diversify its product line, although futures on individual stocks were many more years in coming.

The Kansas City Board of Trade launched the first stock index futures contract on the Value Line in February 1982, and the Chicago Mercantile Exchange followed with its S&P 500 Index contract a few months later. The S&P contract quickly became the market leader and continues to dominate U.S. stock index futures trading today. A number of stock index futures and options contracts are now available to futures traders, covering all areas of the market. The most popular major index futures contracts are listed below.

Standard & Poor’s 500® Index

The S&P 500 Index is a market value-weighted index of 500 large-capitalization stocks traded on the New York Stock Exchange, American Stock Exchange and Nasdaq National Market System. Because the S&P is capitalization-weighted, those stocks with the most shares outstanding at the highest prices will have the most influence on the index movement. The S&P 500 index, introduced in 1957, is known as the investment industry’s standard for measuring portfolio performance and is licensed by McGraw-Hill Companies Ltd.

The Chicago Mercantile Exchange introduced S&P 500 futures in 1982, and they originally traded at $500 times the cash index. As the market began to surge during the 1990s, the initial margin became too costly for many futures traders. In response, the CME decided to cut the contract’s value to $250 times the index. The CME went even further to attract individual investors.

In 1997, the CME launched an even smaller version of its popular S&P 500 futures contract, which was felt to be more attractively sized for individual traders. The E-mini S&P 500 futures are priced at one-fifth the size of the big contract at $50 times the index, with a lower initial margin. But the real innovation of the new “mini” futures was the fact that they traded on an electronic platform, and not in open-outcry pits. CME officials decided trading would take place entirely on a trade-matching computer, giving traders direct access to the market and not an order-handler. Electronic trading would no longer be used only for after-hours trading or as a supplement to the primary pit contract. It became the mainstream market for the E-mini contracts. And, as long as trading was all computer-based, the CME decided to keep the market open nearly 24 hours a day. In just a year after its launch, the E-mini S&P futures were the third most active stock index contract in the country, and today, boast the strongest volume of any U.S. stock index product. Because of its strong liquidity, what started out as mainly a product for small speculators, day-traders and other retail investors is now also an institutional favorite.

Nasdaq-100® Index

The Nasdaq-100 Index is a modified market-capitalization index and includes the top 100 non-financial stocks (both domestic and foreign) listed on the Nasdaq Stock Market. Stocks such as Microsoft, Intel, eBay, Dell, Cisco, etc. dominate the index, so it’s frequently associated with the technology sector of stock investing.

Futures on the Nasdaq-100 began trading in 1996 with a value of $100 times the index. Like the S&P 500 Index, the value of the Nasdaq-100 rose dramatically during the 1990s, and the CME launched a mini-sized electronic contract. E-mini Nasdaq-100 futures are priced at $20 times the index.

Both E-mini S&P 500 and E-mini Nasdaq-100 futures were smashing successes. Volume quickly grew in both to overtake their larger futures benchmarks and paved the way for many other mini-sized futures products at the CME and other exchanges.

Dow Jones Industrial Average

The Dow Jones Industrial Average is an index of 30 large capitalization “blue chip” stocks traded on the New York Stock Exchange, accounting for about 20 percent of the market value of all U.S. equities. The index, first published in 1896, is the most widely quoted market indicator in newspapers, radio, television and electronic media throughout the world. Futures on the DJIA began trading at the Chicago Board of Trade in 1997 after heated competition between the Chicago exchanges for the rights to trade futures and options on products owned by Dow Jones & Co., which had remained reluctant to allow its name to be used in trading.

The CBOT offers three different DJIA futures contracts with sizes tailored to different market participant needs. Its “Big” DJIA futures contract has a value of $25 times the average, while its standard DJIA futures contract is $10 times the average. The CBOT also offers an all-electronic, mini-sized DJIA futures valued at $5 times the average for smaller investors.

Single-Stock Futures

Single-stock futures, also known as security futures, began trading in 2002 after many years of regulatory debate. The so-called Johnson-Shad Accord in the early 1980s had set the ground rules for stock index futures, but futures on individual stocks and narrow-based stock indexes were not allowed to trade. They remained banned until Congress opened the door with passage of the Commodity Futures Modernization Act of 2000.

The legislation gave the green light to single-stock futures, and futures trading on individual stocks debuted in November 2002. In the United States, online futures trading in single-stock futures occurs at OneChicago, LLC, with each futures contract represents 100 shares of the underlying stock. Single-stock futures offer many potential advantages over stock investing, such as greater leverage, an easier ability to take a short position, and positive tax benefits.

Volatility Futures

The CBOE Futures Exchange, LLC (CFE) launched trading in VIX futures in March 2004. VIX futures are based on the CBOE Volatility Index, which was first introduced in 1993 and became known as a benchmark of stock market sentiment among investors. Derived from real-time S&P 500 Index option prices, the CBOE states the VIX is designed to reflect investors’ consensus view of expected stock market volatility over the next 30 days.

Other CFE volatility futures products include Russell 2000 Volatility Index Futures and DJIA Volatility Index Futures.

The CFE also offers a realized variance futures contracts. S&P 500 three-month Variance Futures are based on the realized variance of the Standard & Poor’s 500 Stock Index over a three-month period, while S&P 12-month Variance Futures are based on the realized variance of the S&P 500 Stock Index over a 12-month period.