What are interest rate derivatives?

Interest rate derivatives are financial contracts that derive their value from the movement of interest rates. They are mainly used to hedge interest rate fluctuations or speculate on the change of interest rates. Common types of interest rate derivatives include:

● Interest Rate Futures (IRF) 

● Interest Rate Swaps (IRS). 

Example

● For example, with an interest rate future, market participants typically establish positions based on their view of where they think interest rates will move in the future based on their analysis of various market factors. 

● Interest rate derivatives are typically used by banks, other financial institutions, and large investors to hedge some exposure to interest rate risk in the debt market.