Fed Funds Futures Settlement Prices: How They’re Calculated and Why Traders Keep Trading

ByThe Answerlode Editorial Team

How CME Fed Funds Futures Settlement Prices Are Calculated

Your calculation method is spot-on. The settlement price for 30-day Federal Funds futures follows a straightforward formula:

Settlement Price = 100 – (Average Daily EFFR for the month)

The CME uses the Effective Federal Funds Rate (EFFR) published daily by the Federal Reserve Bank of New York, and calculates the arithmetic mean of those rates across all calendar days in the contract month—including weekends and holidays, which carry forward the previous business day’s rate. For months with 30 days, you divide the sum of all daily rates by 30; for 31-day months, by 31. The settlement price is then derived by subtracting that average from 100.

In your November example: (4.83 × 7 + 4.58 × 23) ÷ 30 = 4.638, and 100 – 4.638 = 95.362. That’s exactly right.

Where to Find Historical Settlement Data

CME Group maintains a comprehensive archive of final settlements for all interest-rate products. You have several options:

  • CME Group Data Portal: Visit the settlements page at cmegroup.com/trading/interest-rates/settlements.html for daily and historical settlement data, volumes, and open interest.
  • CME DataMine: A dedicated data service offering more granular historical series, searchable by contract and date range.
  • EFFR Source Data: The New York Federal Reserve publishes daily EFFR at newyorkfed.org/markets/reference-rates/effr, and the St. Louis Fed’s FRED database archives it for free at fred.stlouisfed.org/series/EFFR.
  • Federal Reserve Board H.15 Release: The Board publishes weekly and historical EFFR averages in their H.15 Selected Interest Rates report.

Why Traders Still Trade Despite Tight Bid-Ask Spreads

Your observation about the 95.3600 bid and 95.3625 ask is correct—a 0.0025 spread means a round-trip in and out costs you about 2.5 basis points of notional value, which seems like a guaranteed loss. But this misses how professional traders actually use Fed Funds futures.

Spread Trading, Not Outright Direction Betting

Most Fed Funds futures trading isn’t about predicting whether settlement will be 95.36 or 95.40. Instead, traders use calendar spreads—simultaneously buying one contract month and selling another. For example, you might buy the December contract and sell January, betting that the spread between them will narrow to a profitable level by expiration. The bid-ask cost on the spread itself is often much tighter than on the individual leg, and profit comes from convergence between contract months, not from picking the absolute price direction.

Hedging Interest Rate Risk

Banks, asset managers, and corporations use Fed Funds futures to hedge exposure to short-term interest rates. A money market fund holding overnight cash, for instance, faces the risk that EFFR rises unexpectedly. By shorting Fed Funds futures, the fund locks in a known rate and offsets that risk. The bid-ask spread is a transaction cost—real, but small compared to the value of hedging away interest rate uncertainty.

Lower Margin and Volatility on Spreads

Spread trades require significantly lower margin than outright positions, and they’re less volatile because the two legs partially offset each other’s risk. A calendar spread in Fed Funds might require 10% of the margin needed for an outright long or short position. This efficiency attracts steady volume from traders whose goal is to manage basis relationships, not to profit from wide directional moves.

Liquidity and Volume Effects

Fed Funds futures carry robust open interest across multiple contract months. Even when individual legs appear to have tight spreads, high volume and the depth of the order book mean traders can execute large positions without moving the market much. The quoted spread may be 0.0025, but the actual effective spread on larger orders is often better due to hidden liquidity.

The Bid-Ask Cost Reality

It’s true that if you simply bought at the ask (95.3625) and sold at the bid (95.3600) on the same month, you’d lose immediately. But Fed Funds futures liquidity is deep enough that most professionals don’t trade this way. Instead, they:

  • Trade spreads between contract months (calendar spreads) where the relationship between legs is what matters
  • Use limit orders to improve their entry and exit prices rather than hitting the market
  • Execute large positions across multiple tranches or time periods
  • Hedge other rate exposures where the bid-ask cost is small relative to the risk being managed

The people entering new positions or rolling existing spreads aren’t hoping the price moves by 0.0025 to break even. They’re professionals managing exposure, and the spread is a cost of doing business—significant only when evaluated in isolation, negligible when amortized across a portfolio of related hedges or trades.

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