Bond Futures
Candlefocus EditorBond futures can be used by both speculators and hedgers. Speculators are investors who take on risk in anticipation of a future reward. They purchase bond futures in an attempt to capitalize on short-term movement in the price of a bond. On the other hand, hedgers have a different purpose. They utilize the futures market to protect their bond holdings from losses due to interest rate swings.
Bond futures are also a way for investors to trade or hedge against changing interest rates. When interest rates go up, the value of a bond goes down. By selling (going short) futures contracts, an investor can hedge against the potential loss that could result from rising rates. Conversely, when interest rates decrease, the value of existing bonds increases. Investors can take advantage of this trend by going long on bond futures.
By using bond futures, investors can speculate on the value of a bond or hedge their bond holdings against interest rate swings without having to physically own the bond. Bond futures are traded on futures exchanges, and the transaction is handled through a broker.