Swaps as Eurodollar Futures Positions

Note there are some differences between the Eurodollar

strip and the swap:
1. First, a 6-month differential occurs between the swap
payment and the futures payments. This time differential
is a result of the interest payments on the swap being
determined by the LIBOR at the beginning of the period,
whereas the futures position's profit is based on the
LIBOR at the end of its period.
2. Second, the futures contract is on a Eurodollar deposit
with a maturity of 6 months instead of the standard 3
months.

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Swaps as Eurodollar Futures Positions

3.

Credit Risk: On a futures contract, the parties transfer

credit risk to the exchange. The exchange then manages
the risk by requiring margin accounts. Swaps, on the
other hand, are exposed to credit risk.

4.

Marketability: Swaps are not traded on an exchange

like futures and therefore are not as liquid as futures.

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