Fed funds futures

Fed funds futures are financial derivatives that are used to speculate on or hedge against changes in the federal funds rate, which is the interest rate at which banks lend money to one another overnight. The contract is based on the effective fed funds rate, which is the average interest rate that banks charge other banks for overnight loans. The value of the contract changes as the market's expectation for the future fed funds rate changes.

In the Fed funds futures market, these are traded as a discount to 100 (similar to a bond) and in 30-day increments. These prices of these contracts are used to synthesize implied probabilities of Federal Reserve rate hikes or cuts.