Eurodollar futures gauge the interest rate on interbank lending with a 3-month timeframe.
We trade Eurodollar futures to bet on the future action of the Fed as the interest rates they directly affect are short-term interest rates, and it’s easy to find the yield.
Using the front-month (/GEU8) yield as our current yield and knowing how many chances the Fed has to hike will influence our trade idea. This greater uncertainty as we go out in time and experience more meetings has been seen in the actual volatility of the further out expirations.
Eurodollars offer diversity in a portfolio of stocks and bonds by giving us exposure to short-term interest rates. Additionally, they are smaller and less volatile products than bonds, or the ETF equivalent, TLT.