Hi, I would like to hedge a part of my portfolio (+/- 50K USD) against rate hike for the next 6 months. The best option, ETF, derivate for retail client of IB according your opinion ????
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The best Interest Rate Protection hedging product available for Retail Investors (TWS/IB)
- Thread starter big_premium
- Start date
Eurodollar futures. Use quarterly expiry, June-21 or Sep-21 if you want more time. The symbol is GE.
This contract is actually quoted in 100 - IR. June-21 now is around 99.835 (Which means that the market is expecting the 3 month USD Libor by June-21 settlement to be at around 100 - 99.835 = 0.165%. 100 means 0% 3M USD Libor, 99 means 1% and so on.
Every 1% movement in the 3M USD Libor is equivalent to $2,500 per contract (profit or loss). Margin is very tiny for this contract. You need to do your math to arrive at the position size you need to hedge your portfolio as per your requirement & view.
Please beware of something, earlier and theoretically, Eurodollar futures were seen as 100 is the ceiling (Since it represents 0% interest), so it was perceived as if it can't go any higher, however, with negative rates a possibility & reality for other currencies, you must take into consideration that GE can go above 100 (If USD rates went negative or even anticipated by the market to go negative).
This contract is actually quoted in 100 - IR. June-21 now is around 99.835 (Which means that the market is expecting the 3 month USD Libor by June-21 settlement to be at around 100 - 99.835 = 0.165%. 100 means 0% 3M USD Libor, 99 means 1% and so on.
Every 1% movement in the 3M USD Libor is equivalent to $2,500 per contract (profit or loss). Margin is very tiny for this contract. You need to do your math to arrive at the position size you need to hedge your portfolio as per your requirement & view.
Please beware of something, earlier and theoretically, Eurodollar futures were seen as 100 is the ceiling (Since it represents 0% interest), so it was perceived as if it can't go any higher, however, with negative rates a possibility & reality for other currencies, you must take into consideration that GE can go above 100 (If USD rates went negative or even anticipated by the market to go negative).
I'm not sure why you want to hedge against rising interest rates, but for a retailer TLT would make sense.
That said, it's just an ETF containing 20y+ year treasuries since you did not specify which interest rates you want to hedge.
All of these are for long term bonds (for example the largest ETF 260mil$ ProShares Short 20+ Year Treasury). Keep in mind we don’t know how the yield curve will work & estimate the correlation between short term & long term rates. I need a hedge against FED rate hikes & particularly for Fed Funds Effective (Overnight Rate)
Eurodollar futures. Use quarterly expiry, June-21 or Sep-21 if you want more time. The symbol is GE.
This contract is actually quoted in 100 - IR. June-21 now is around 99.835 (Which means that the market is expecting the 3 month USD Libor by June-21 settlement to be at around 100 - 99.835 = 0.165%. 100 means 0% 3M USD Libor, 99 means 1% and so on.
Every 1% movement in the 3M USD Libor is equivalent to $2,500 per contract (profit or loss). Margin is very tiny for this contract. You need to do your math to arrive at the position size you need to hedge your portfolio as per your requirement & view.
Please beware of something, earlier and theoretically, Eurodollar futures were seen as 100 is the ceiling (Since it represents 0% interest), so it was perceived as if it can't go any higher, however, with negative rates a possibility & reality for other currencies, you must take into consideration that GE can go above 100 (If USD rates went negative or even anticipated by the market to go negative).
Dude, he's a retailer who wants to hedge 50k. Eurodollars are 1m notional.
On top of it, he probably only understood the first two sentences.
Given the fact that he did not even specify what he wants to hedge (FED funds, STIRS, long term rates) he probably just read some 3rd party analysis saying that interest is going to rise (?!).
He should be on the easiest product he can find
Forget it.All of these are for long term bonds (for example the largest ETF 260mil$ ProShares Short 20+ Year Treasury). Keep in mind we don’t know how the yield curve will work & estimate the correlation between short term & long term rates. I need a hedge against FED rate hikes & particularly for Fed Funds Effective (Overnight Rate)
FED funds futures are 5m notional.
There are some shady and illiquid FED Funds effective rate ETF's which you probably cannot even buy via IB.
This bet is too big for you.
The only thing you could think about is getting into some options box spreads as a proxy....but on a second thought, it might still be a shitty idea
Eurodollar futures. Use quarterly expiry, June-21 or Sep-21 if you want more time. The symbol is GE.
This contract is actually quoted in 100 - IR. June-21 now is around 99.835 (Which means that the market is expecting the 3 month USD Libor by June-21 settlement to be at around 100 - 99.835 = 0.165%. 100 means 0% 3M USD Libor, 99 means 1% and so on.
Every 1% movement in the 3M USD Libor is equivalent to $2,500 per contract (profit or loss). Margin is very tiny for this contract. You need to do your math to arrive at the position size you need to hedge your portfolio as per your requirement & view.
Please beware of something, earlier and theoretically, Eurodollar futures were seen as 100 is the ceiling (Since it represents 0% interest), so it was perceived as if it can't go any higher, however, with negative rates a possibility & reality for other currencies, you must take into consideration that GE can go above 100 (If USD rates went negative or even anticipated by the market to go negative).
SOUNDS GOOD BUT I need only for 50.000$ hedging so I need to purchase only 1/5th of this contract. Maybe any a different mini product?
Keep in mind I would to hedge against Fed Funds Effective (Overnight Rate)
The Eurodollar contract is a $1m notional contract, there are no mini or micro contracts available for that purpose. Fed Funds is a $5m contract as MrMuppet mentioned.
What is it that you are trying to hedge exactly? What harm/risk would happen to your $50k portfolio if the Fed Funds rate rose by 1% in the next 6 months? Is your $50k portfolio in cash or are you holding $50k worth of stocks or $50k worth of Bonds? What types of stocks or Bonds?
What is it that you are trying to hedge exactly? What harm/risk would happen to your $50k portfolio if the Fed Funds rate rose by 1% in the next 6 months? Is your $50k portfolio in cash or are you holding $50k worth of stocks or $50k worth of Bonds? What types of stocks or Bonds?
I need the following: HEDGE AGAINST INTEREST CHANGES FOR: Fed Funds Effective (Overnight Rate) or similar S.T. US interest rate index FOR ONLY 50K$
If you want to be long inflation, I'd suggest a long TIP, short IEF pair. Nothing is perfect, but that should at least get you some protection.