A futures contract that has a gilt as underlying. Gilt, by definition, is a fixed-rate debt security issued by the UK government. For market participants, it is a type of investment that pays a fixed-rate of interest and is associated with a very minimal amount of risk (credit risk). It is a kind of derivatives that facilitate functioning in the cash gilt market. Gilt futures are traded on an electronic order book (with very high frequency.

Trading gilt futures is more appealing than trading underlying gilts/ bonds due to their standardized nature on an organized exchange that plays counterparty to each party involving in the contract, ensuring there is no counterparty risk to entering and exiting positions.

As a type of financial derivatives, gilt futures are typically used to establish exposure to cash gilts, the actual debt securities that underlies the contract. Buyers / holders of gilt futures commit to buy a cash gilt at a set price on a certain future date, while sellers commit to sell a cash gilt under the agreed terms.

Gilt futures are instrumental in hedging exposures in in the gilt and associated interest rate derivatives market.

For the issuing government, gilt futures provides for price discovery and support hedging in the cash gilt market, and as such can be a means of transmitting the monetary policy and financial stability.