Interest rate futures
What are SOFR (Secured Overnight Financing Rate) futures and how did they replace legacy Eurodollar contracts?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
SOFR futures are based on the Secured Overnight Financing Rate, a repo-market benchmark that replaced LIBOR-based Eurodollar futures after regulators phased out LIBOR due to manipulation concerns.
How it works
CME transitioned open interest from Eurodollar to SOFR futures between 2021-2023; SOFR is collateralized by Treasury repo transactions, making it more robust than the unsecured, bank-estimated LIBOR.
An example
A bank hedging floating-rate loan exposure now uses 3-Month SOFR futures instead of legacy Eurodollar contracts to hedge short-term funding costs.
Risk & limitations
SOFR can spike unexpectedly during repo market stress events, causing basis differences versus prior LIBOR-based hedging assumptions.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.