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Monetizing My Fed Fund Rate Forecast

September 22, 2015 by

Right after the recent interest rate announcement by the Fed’s FOMC on September 17, I have decided that there is some money to be made in market’s persistent expectation of the rate hike in the USA. It is consistent with my long-term view on the US interest rates for 2015. The natural way to monetize my disbelief in the higher interest rates was to buy a 30 Day Federal Funds Futures contract on CME.

I have checked EXNESS, AGEA, FXDD, InstaForex, and RoboForex — brokers that I have a live account with. Unfortunately, none of them provides CFDs for federal funds rate futures. I have not checked Interactive Brokers — I am pretty sure they have this futures contract, but I lack free margin in my IB account and depositing there is a long and tedious process for me. Opening a new account at some other broker was out of the question — I already have too many.

Going long on EUR/USD or any other XXX/USD pair would be another possibility to earn in case the Fed postpones rate increase further. However, from the technical analysis point of view, I do not see how I can enter a long position on EUR/USD with a satisfactory risk-to-reward ratio. Even less so combined with a safe stop-loss that will not be taken out by some price action completely unrelated to the interest rate dynamics.

So, when I almost gave up on the idea, I have found out that it is possible to create custom bets on almost any event using Bitcoin. Quite a few Bitcoin bet exchange platforms are available. After reviewing five most popular ones, I have decided that BitBet.us is the right platform for my goal — it appears to be the most popular one. Thus on September 19, I have created my first bet there: Federal Reserve will raise federal funds rate at October FOMC meeting. Of course, my initial bet is No for that statement.

Obviously, this way of betting on the Fed is not perfect. That is why I invested just 1 BTC in it — this is my first test after all. If successful, the bet exchange could be used for a lot of other Forex-related bets and hedges. The main disadvantage here is that it is entirely possible that in the end, the risk-to-reward ratio will be poor due to low interest in such a bet from the BitBet’s auditory.

Advantages:

  • Popular bet exchange platform
  • Many bets unrelated to BTC price
  • Convenient — no registration required
  • No auxiliary risks compared to opening an FX position

Disadvantages:

  • Risk of low interest in the bet
  • BitBet owner’s dubious reputation

Monetizing Interest Rate Forecast Using BitBet


What is your opinion on monetizing the interest rates forecasts? Please feel free to share your ideas using the commentary form below.

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