What are SONIA Futures?

What are SONIA Futures?

SONIA futures are financial contracts based on the Sterling Overnight Index Average (SONIA), which serves as a benchmark for short-term interest rates in the British pound market. The underlying asset is SONIA.

Key Points about SONIA Futures:

  • Hedging Tool: Primarily used for hedging interest rate risk.
  • Cash-Settled: No physical delivery of the underlying asset (SONIA) occurs.

Benefits of SONIA Futures:

  • Manage Interest Rate Risk: Hedging tool for entities exposed to floating-rate loans or investments.
  • Speculative Opportunities: Potential for profit if predictions about future SOFR movements are accurate.
  • Increased Liquidity: Provides an avenue for increased participation in the short-term interest rate market.