The Secured Overnight Financing Rate (SOFR) is an important benchmark for pricing loans, derivatives, and other financial instruments.

As the replacement for the London Interbank Offered Rate (LIBOR), SOFR offers a more transparent alternative that reflects the cost of borrowing in the US financial system.

Following LIBOR’s vulnerabilities, which were exposed during the 2008 financial crisis, SOFR has become the preferred benchmark for US dollar-based financial contracts.

Traded on the Chicago Mercantile Exchange (CME), SOFR futures let investors hedge or speculate on future rates.