Short sterling future

The 'short term interest rate future' (or STIR) is also known as the 'short sterling' future. In essence, it facilitates bets on where interest rates will be.

Derivatives markets allow traders to bet on the direction of many securities and even interest rates.

The most straight forward way to do this, is using the Short Term Interest Rate (or STIR) future. This is also known as the 'short sterling' future. In essence, this facilitates bets on where interest rates will be. One source of confusion is the price the contract is priced at 100 minus the expected sterling interest rate. So if that rate is 1%, the future will be quoted at 99 (100-1).

Advertisement - Article continues below

A trader betting on a rise in rates would sell the contract at 99. If rates do rise (sterling money market rates, that is) to, say, 2%, the threemonth contract will be repriced at 98 (100-2). So by buying back the contract the trader makes a profit of 1 (99-98), or 100 basis points (1 basis point is 1/100th of 1%).

This is multiplied by a fixed charge of £12.50 per basis point to give a profit of £1,250. If the trader had sold ten contracts that profit would be £12,500. These contracts can also be used to hedge rate changes.





A bond is a type of IOU issued by a government, local authority or company to raise money.
19 May 2020

Quantitative investing

Quantitative investing uses sophisticated computer-based mathematical models to identify and carry out trades.
8 May 2020

Quantitative easing (QE)

Quantitative easing (QE) involves electronically expanding a central bank's balance sheet.
8 May 2020

Emerging markets

An emerging market is an economy that is becoming wealthier and more advanced, but is not yet classed as "developed".
24 Jan 2020

Most Popular


As full lockdown ends, what are the risks for investors?

In the UK and elsewhere, people are gradually being let off the leash as the lockdown begins to end. John Stepek looks at what risks remain for invest…
29 May 2020
Global Economy

The MoneyWeek Podcast: James Ferguson on the virus, the lockdown, and what comes next

Merryn talks to MoneyWeek regular James Ferguson of Macrostrategy Partnership about what's happened so far with the virus; whether the lockdown was th…
28 May 2020

Can the UK housing market escape a slump?

The Bank of England is predicting a 16% slump in house prices.
29 May 2020