I'm used to trade Forex (on the spot market) and I have decided to move toward the interest rate market, specifically SWAPs, Swaptions, Futures and FRA.
I know that these markets are very different, and the interest rate market seems far more complicated. Would you have some books or papers, steady analysis in order to help me to familiarize myself with this market?
The knowledges that I am trying to access to are the ties with the fundamental, the impact of the monetary/budgetary policies, the economical impacts, the interaction between the differents markets (I have a mathematical background, so I had time to familiarize myself with technical issues), because I think that the two of the theorical base, and the conjonctural analysis will be very helpful in my training.
My objectives are to be able to bet on the direction of the curve, and on the shape and volatility as well.
Some are more liquid than others - depending on your objectives. Eurodollars and longer durations shouldnt give you any troubles.
The CME do have SWAP futures as well, but they are pretty thin. I dont believe they will be a good proxy for real swaps as the swap is the deliverable, it isnt cash settled into the equivalent of the swap. The big difficulty with swap futures is how to mirror a swap. If I trade a 5 year swap today, tomorrow it is no longer a 5 year swap, it's a 4 year and 364 day swap. This is one reason these products are having difficulty taking off. The exchange would have to list a new contract every day, meaning open interest will be difficult to analyse or give meaningful feedback. JMO
There is a ton of ways to trade interest rate futures. The prop shops shops like to teach the newcomers to spread because its an arb game, it's low risk. Once they learn how to spread, the leverage them up with lots of lots and cheap commissions. Many prop shops are 90 % bill spreaders....for a reason, it's easier to be a consistently profitable bill spreader than an outright directional trader.... Most of the time.
Search for bond spreading, bill spreading, trading the curve...
Better yet, apply to a prop firm.
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I have found a lot of interesting documentation thanks to your keywords.
Actually, I find that the interest rate derivatives are appealing thanks to the possibility to bet on curve (spread on different maturities), and on the different products as well.
But don't you think that I will have to focus in very wide variation expectaions only, as the execution comissions can be high relative to the spread?
I reckon so and thats one reason I didn't pursue it. Best way to find out is leverage up your sim account and sim trade the curve for a while, good time now as we have thinner liquidity and a touch of taper induced volitility!