Educational Trading Video: Trading Fed Funds Futures...What you really need to know

Do the Fed Funds futures markets tell us what the Fed is going to do? The answer to that question is a resounding “no”! Fed Funds futures contracts are simply trading vehicles in which hedgers, but mostly speculators, buy and sell according to their market outlook. Although it can be argued that the Fed has been looking to the financial markets for policy guidance, in the end, they are the decision makers. Nevertheless, as the opinions of the market sway in regard to the Fed’s next move, so do the prices of the Fed Funds futures contracts. Accordingly, there are some viable trading opportunities; particularly from the bearish side of the market given the relatively limited upside potential (assuming the Fed doesn’t lower interest rates anytime soon). In the video below we discuss Fed Funds futures trading strategy, market characteristics, and ideas on low-risk ways to trade the prospects of higher interest rates.