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Paying USD FRA-OIS to Position for a Wider Libor-OIS Spread

Article Quant Q&A · Author: Always_Student
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Summary

The document explains the direction of a USD FRA-OIS swap position. The answer states that a trader expecting the Libor-OIS spread to widen would pay on the swap, paying OIS plus the spread and receiving Libor. This clarifies the cash-flow direction behind the market shorthand and the intended spread exposure.

The original question mixes up paying the OIS leg with receiving a fixed rate and asks whether widening spreads would make the trade profitable. The response offers a concise directional explanation, but does not define the contract's precise conventions, explain valuation or mark-to-market mechanics, or discuss hedge ratios and risks. It also relies on an external forum reference rather than presenting supporting calculations, so the description is useful as basic orientation rather than a complete guide to pricing or managing the position.

Key ideas

  • A USD FRA-OIS position can be traded through a swap.
  • The answer describes paying OIS plus the spread while receiving Libor.
  • The stated position is the direction for a trader who expects the Libor-OIS spread to widen.
  • The document does not explain valuation, contract conventions, or the trade's risks.

Tags

Fixed incomeDerivatives pricingRisk management
Full text
# What does it mean to pay USD FRA-OIS?


# What does it mean to pay USD FRA-OIS?












Would just like to check my understanding.

If I were to pay USD FRA-OIS, does it mean I'm paying the OIS leg and receiving fixed? And the fixed is because the 3mL is fixed at the start of the period/tenor of the contract?

So this implies that if the LIBOR-OIS spread widens, the trade would be in the money?

Thanks!

## Answer by Always_Student (score 1)

https://quant.stackexchange.com/a/35775

I think I've found the answer in another forum (which fits my initial intuition). So just to share:

> FRA-OIS is traded via swap. So if you think the spread would widen you pay on the swap. So you would pay OIS + Spread and receive Libor.

https://www.wallstreetoasis.com/forums/tech-questions-on-eurodollar-and-fed-funds-futures-hedging

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.