IRF vs FRA: a five-axis comparison
Interest Rate Futures versus Forward Rate Agreements compared across venue, standardisation, margin, regulation, and liquidity.
A 3:30 animated lesson that walks through the five axes on which interest rate futures and forward rate agreements diverge. Built for FIN301 Derivatives students at Western Sydney Vietnam, but applicable to any finance student meeting these contracts for the first time. The video uses the same vocabulary as Hull (2022, §6.4), with worked references to the ASX 90-day Bank Bill futures and OTC FRA pricing conventions.
The five axes covered are: venue (exchange vs OTC), standardisation (fixed lot and expiry vs custom), settlement mechanics (daily mark-to-market vs start-of-period discounted), counterparty risk (clearinghouse vs bilateral with ISDA collateral), and the convexity adjustment that makes the futures-implied rate slightly higher than the equivalent forward rate at long maturities.
Pair this video with the Atlas concept page below for formulas, worked examples, and a quick check quiz.