Eurodollar and its futures contract

"Eurodollar Futures Contract

The Eurodollar futures contract refers to the financial futures contract based upon these deposits, traded at the Chicago Mercantile Exchange (CME) in Chicago. Each CME Eurodollar futures contract has a notional or 'face value' of $1,000,000, though the leverage used in futures allows one contract to be traded with a margin of just hundreds of dollars. Trading in Eurodollar futures is extensive, thus offering uniquely deep liquidity. Prices are quite responsive to Fed policy, inflation, and other economic indicators.

CME Eurodollar futures prices are determined by the market’s forecast for the delivery month of the 3-month USD LIBOR interest rate. The futures prices are derived by subtracting that implied interest rate (yield) from 100.00. For instance, an anticipated interest rate of 5.00 percent will translate to a futures price of 95.00. However, the price in practice, the settlement price, is higher than the quoted price to reflect a lower return for 3 months instead of one year. This 95 dollar future, is actually traded at 98.75 (100-5.00/4). And one future contract is traded at $987,500. On the expiry day of a contract, the contract is valued using the current fixing of 3-month LIBOR.

..." Eurodollar - Wikipedia, the free encyclopedia