Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 1: Principles of financial trading
Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 2: Principles of Financial Planning and Cash Flow in Financial Trading
Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 3: Understanding financial trading techniques


Unlike the OTC inter-bank markets from which they derive, all STIR futures contracts are traded electronically on regulated exchanges. A STIR futures contract is a legally binding agreement concerned with the buying and selling of a standardised number of short term interest rate products at a fixed price, for cash settlement on a given future date.

STIR futures contracts derive from the cash inter-bank markets, mentioned in the What Is The STIRS Market? section. The advantage of using STIR futures is that they are traded using standardised contracts, thus providing uniformity of specification and quality, which in turn enhances market liquidity and efficiency.

STIRS are short term interest rate derivatives that derive from the underlying three month LIBOR, TIBOR, EURIBOR, and EURODOLLAR rate traded in the OTC money markets. STIRS have been rapidly expanding because they offer something that the OTC cash markets cannot offer, the three main reason are:

  • Enables traders to trade for a future value date, therefore allowing the possibilities of hedging a forward interest rate exposure hence removing some uncertainties associated with interest rate risk management. Speculators on the other side of the coin are instrumental in providing liquidity that exchanges need by speculating on future price movements.
  • Futures are termed ‘Off Balance Sheet’ products; they do not involve the physical risk of the underlying transaction amount, but are based on contract for difference settlement. Trading STIRS will utilise less of a bank’s capital than would be the case with on balance sheet transactions such as cash.
  • Counterparty risk is standardised in the futures markets. This is due to the combination of the margining system unique to the futures exchange and the role of the clearinghouse standing as counterparty to every trade.

When traders enter into a STIRS contract they are trading what they think the official cash inter- bank fixing rate will be on a given future date, or they are speculating on intra-day price action.

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