Interest rate parity

This one is not written up yet

The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.

Written up from the same chapter

• Base priceThe reference price a contract starts each trading day from — the theoretical futures price on the day it is introduced, and the previous day's daily settlement price on every day after.
• ConvergenceThe certainty that a futures price and the spot price of its underlying meet at expiry — because on the last trading day the contract settles at the cash market price, leaving no room for a difference.
• Daily Settlement PriceThe price at which every open futures position is marked and reset at the end of each day — the last 30 minutes' volume weighted average price of that contract, computed separately for each expiry.
• Final Settlement PriceThe price at which a commodity derivative is finally settled at expiry — a simple average of the polled spot prices of the expiry day and the two days before it.
• Open interestThe total number of derivative contracts outstanding and not yet settled in an underlying — counted on one side only, because every long is matched by a short.
• Tick sizeThe smallest price change a contract may be quoted in — prices move only in whole multiples of it, and it differs from one commodity to another.