STIR Future

Also known as: SOFR futures, Euribor futures, Short-term interest rate futures

Exchange-traded bets on short-term rates — the deepest, fastest market for central-bank expectations.

3 min read · 549 words · Updated

1 · SnapshotThe one idea to remember
Key intuition: a STIR future is a tradable pixel of the future path of policy rates. The strip of contracts, laid end to end, is the market's rate forecast.
2 · BeginnerWhat is it, really?

STIR (short-term interest rate) futures let you trade where money-market rates will be months or years from now. The main contracts settle on realised overnight rates — three-month compounded SOFR in the US, plus Euribor in Europe.

The quoting trick everyone learns first: the price is 100 minus the interest rate. A future at 96.50 implies a 3.5% rate. If you think rates will be cut more than the market expects, you buy (rates down → price up).

These are among the most heavily traded instruments in existence — the arena where every inflation print, payrolls number and central-bank speech is instantly converted into price. When headlines say "markets moved to price three cuts", this is the market that moved.

P&L linear in the realised short-term rate: price = 100 − rate, so falling rates lift the price.
F₀Long futureUnderlying price at expiryProfit / loss

Point at a line to pick it out from the others.

A price quoted as one hundred minus the rate
The buyerwants lower ratesThe sellerwants higher1A price is agreed, nothingis lent2The day's move, at a fixedtick value3Settled against thepublished rate4Next quarter's fundingcost is fixed

a paymentonly if a condition is metnot a payment

There is nothing to deliver, so every payment on this contract is a daily cash settlement against a published number.

On the trade date

  1. The buyer → The seller Quoted as 100 minus the rate, so buying is a position for rates falling. No notional changes hands, ever.

Every day until expiry

  1. The seller → The buyer Each basis point is worth a stated amount set in the contract specification, so the profit is arithmetic rather than a negotiation.

At expiry

  1. The seller → The buyer The contract closes against the official index for the period. Nothing further happens and nobody delivers anything.

Why a treasurer uses one

  1. The buyer → The seller A strip of these locks in a borrowing rate for a run of future periods without borrowing anything today.
Margin and the final settlement priceafter the trade
Either sideClearing housevia your brokerThe reference ratepublished daily1Initial and variationmargin2The official rate decides

a paymentnot a payment

Every day

  1. Either side → Clearing house Marked to the exchange's official close and settled before the next session.

At expiry

  1. The reference rate → Clearing house Whichever index the contract names. If that index is discontinued, the fallback written into the specification takes over.
Asset class
Rates derivatives
Instrument type
Cash-settled future
Traded
Exchange (CME, ICE)
Typical users
Macro funds, banks, prop traders

Which risks decide the outcome

Not how risky this is, and not a rating — there is deliberately no total. It says which of five failure modes drives what happens here, in the same order on all 129 products so they can be compared. This publication's own reading; see the notice below.

  • Marketdecides it
  • Creditbarely applies
  • Liquiditybarely applies
  • Fundingdecides it
  • Operationalbarely applies

What decides it here. Quoted as 100 minus the rate, settled in cash every day. There is nothing to deliver and nothing to default on; there is only margin.

What the five mean, and which one decides where →

3 · IntermediateHow it works in practice

Contract mechanics (3-month SOFR)

  • Settlement: 100 − (annualised compounded SOFR over the contract's 3-month reference quarter) — purely backward-looking, no fixing risk.
  • Size: $25 per basis point per contract; ticks of ¼ or ½ bp.
  • Listings: quarterly (Mar/Jun/Sep/Dec) years out, plus 1-month contracts for meeting-level precision.

Trading the strip

  • Outrights: a view on one quarter's average rate.
  • Calendar spreads: buy one contract, sell another — a bet on the pace of hikes/cuts between two quarters, with less outright risk.
  • Butterflies/condors: curvature trades on the path's shape.
  • Options on STIR futures: the liquid way to trade probabilities of specific policy scenarios (huge open interest builds at strikes matching "policy lands at X%").

Relation to OIS

A SOFR future and a matching-period OIS express the same expectation; differences are convexity (futures margining) and microstructure. Curve builders use futures for the front 2–3 years, swaps beyond.

Worked example: the Dec contract trades at 96.00 (4.0%). You expect faster cuts averaging 3.5% that quarter → buy. Right: contract settles 96.50, +50bp × $25 = $1,250 per contract. A 100-lot: $125k. Wrong by the same amount: −$125k.
4 · AdvancedPricing & valuation

From prices to policy paths

Each quarterly settlement is \(100 - \bar{r}_q\) where \(\bar{r}_q\) compounds daily SOFR. With meeting dates inside the quarter, assume piecewise-constant policy and solve the strip for per-meeting expected moves — the futures-implied policy path. Options on the contracts add full distributions: risk-neutral densities via Breeden–Litzenberger on the strike ladder.

Convexity adjustment

Daily margining pays the long when prices rise (rates fall) — cash arrives in low-rate states, a systematic benefit priced into futures. Futures-implied forward rates therefore exceed OIS forwards:

$$ f_{fut} - f_{OIS} \;\approx\; \tfrac{1}{2}\,\sigma^2\, T_1 T_2 \quad \text{(Ho–Lee approximation)} $$
What the symbols mean
  • ta point in time
  • Sthe price of the underlying today
  • sigmavolatility, the standard deviation of returns
  • Tmaturity, in years

growing with maturity² and vol² — negligible in the whites (first year), tens of basis points in the golds (4–5 years). Curve construction must strip it; getting it wrong misprices the whole back strip.

Microstructure edge cases

Since settlement compounds realised rates, the front contract's remaining uncertainty decays daily — after the last meeting in its window it becomes nearly deterministic. Turn-of-quarter repo spikes, IORB tweaks, and debt-ceiling distortions all print directly into settlements; traders model the SOFR-vs-target-rate spread explicitly.

The formulas above are standard textbook formulations, simplified for teaching. They explain the mechanism — they are not a valuation tool, and they will not reproduce a dealer’s price.

5 · Desk notesHow practitioners think about it
Practitioner note: read the futures strip before every macro discussion — it's the consensus you're implicitly trading against. Your view only matters where it differs from what's already at 96.50.

Now say it back

Close the page and give STIR Future in four sentences. It takes a minute and it is the only way to find out whether reading it was enough.

  1. Who wants what — two parties wanted opposite things badly enough to write it down.
  2. What the contract obliges, and when — not the payoff; the obligation.
  3. Where the money comes from — name the source, or you have described a hope.
  4. What makes it lose — the ordinary way, not the dramatic one.

Do it with a clock → · why these four

Put STIR Future beside any other instrument →

Read next

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Hard. RatesFRA

Forward Rate Agreement

Lock today the interest rate for a loan that starts in the future — one period, one payment, pure simplicity.
Hard. RatesSwap option · Payer / receiver swaption

Swaption

An option to enter a swap — the instrument through which the market prices interest-rate uncertainty itself.

Where this instrument shows up elsewhere

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  • MediumThe Yield CurveConceptsOne line, drawn from overnight to 30 years — the bond market's forecast, the economy's mood ring, and a P&L engine…
  • MediumWhich Desk Trades WhatPrepEleven trading seats and six that sit next to them: what each one actually touches, the single number it lives by,…

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