How do interest rate derivatives work?
Interest rate derivatives mean that you’re agreeing to speculate on the future price of a specific interest rate, for example, the Pound base interest rate. Also, interest rate derivatives’ pricing is determined by underlying futures markets.
If you choose to spread bet on interest rate futures, you’ll bet on an amount of money per point of movement. So, if you’re speculating on the Short Sterling at £12.50 per point, for example, you stand to gain or lose £12.50 for every point that the Short Sterling moves, multiplied by your deal size.
When trading interest rate derivatives via CFDs, there are two different contract sizes: standard and mini. A mini contract is worth 20% of a main contract’s size. For example, one main contract of the Short Sterling is worth £12.50, while the mini is worth £2.50 per contract.
With CFDs, your profit or loss is determined by the difference between the Short Sterling’s price when you opened your position and when you closed it, multiplied by the contract value (main or mini) as well as by the amount of contracts you bought or sold.