News
Market Data
March 2024: Tradition Sets the Standard, Outperforming Competitors in Q1
By Ian Sams
8 Apr 2024
FX & Money Markets
Navigating the FX Landscape: Understanding Trends & Data Available
By Sal Provenzano
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Bank of Japan Decision to End Negative Interest Rate Policy Influences OIS Rate
By Saracen Fletcher
25 Mar 2024
Interest Rate Derivatives
Interest Rate Derivatives Updates: March 2024
By Jessica Kalaria
19 Mar 2024
Product notification
25 new USD SOFR Butterfly Spreads added to package
13 Feb 2023
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Our Forward Rate Agreement (FRA) packages provide comprehensive market coverage across 26 currencies. The data also includes alterative reference rate single period swaps, with data sourced directly from Tradition’s brokerage desks with 46 desks in 19 countries. Data can be delivered in real-time, intraday and end of day.
IMPORTANT NOTE: Where the underlying fixing for a FRA is a deprecated LIBOR or other IBOR, TraditionData may publish, subject to regulatory guidance, FRA rate data that are reflective of published fall-back mechanisms and market ARR rates. These levels are, therefore, not reflective of visible FRA market activity.
Hedging Interest Rate Risk: FRAs allow parties to lock in a fixed interest rate on a future date, which can help reduce the risk of interest rate fluctuations.
Speculation: FRAs can be used by investors or traders to speculate on future interest rate movements.
Matching Assets and Liabilities: Institutions can use FRAs to match their future borrowing or lending rate with their assets or liabilities.
Valuation: FRAs can be used to value interest rate derivatives and to price other financial instruments.
Compliance with Regulations: Banks can use FRAs as a means to comply with regulations on capital adequacy and risk management.
A FRA is a financial contract between two parties in which one party agrees to pay a fixed interest rate to the other party on a specific date in the future, with respect to a short-dated loan tenor between 1 and 12 months, and based on a specified notional amount, in exchange for a floating interest rate that is determined at the same future date. The FRA rate is determined at the time of the trade agreement and is based on the prevailing interest rates at that time. The floating rate is determined at or just before the start of the FRA tenor accrual period and is based on a published reference rate fixing. The FRA is commonly used as a means of hedging against interest rate risk.
FRAs also enable investors to speculate on the future direction of interest rates, providing them with the flexibility to take advantage of both rising and falling yields.
Read more on Forward Rate Agreements here.
The fair market price of a FRA may be based on the level of one or more deposit futures contracts, or on a projection of forward rates that reflects market-observed interest rate swaps, or simply on broker-observed buy and sell orders.
The settlement of a FRA, once the floating rate has been fixed, is by historical convention calculated as the fixing minus the traded rate, discounted to present value under the assumption of funding at the just-published fixing. That funding assumption is generally not consistent with actual market funding, leading to the need for some pre-trade valuation adjustment in some cases. If the calculated settlement amount is positive the buyer of the FRA receives the discounted differential from the seller, and if negative, the negated positive amount is paid to the seller by the buyer. The settlement payment, being discounted, is paid on the FRA accrual period start date.
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