[Alex]

Does anyone here trade the 3-Month Sterling (Short Sterling) Futures contract on LIFFE? I'm interested to know who the big players are and why they trade it.

The standard contract size is £500,000 and the price is based on what the LIBOR rate is predicted to be on the day of settlement. Just like bonds, the price moves inversely to the yield which is 100-x. The minimum tick size is 0.01 which corresponds to a £12.50 change in price.

For example, if you were betting the Bank of England was going to surprise the market by raising the base rate, you would take a short postion. You sell at a price of 95.00 (LIBOR 5%) and a few weeks later the BOE raises rates by 25 basis points. The LIBOR rate moves to 5.25% and you buy the contract back making a profit of £312.50.

(95.00-94.75)/100*£500,000*3/12 = £312.50