Eurodollar vs FRA...quoted from CFA forum

There are two big differences between Eurodollar futures and FRA's (forget structural and credit things): 1) A Eurodollar futures contract is marked to market daily and gains in the margin account earn interest at a rate highly correlated to the underlier of the futures contract. This needs to be accounted for in the hedging or you have "imperfect tailing" 2) A Eurodollar futures contract is on an interest rate and an FRA, while it looks like a forward on an interest rate, is really a forward on a zero coupon bond. It is pretty easy to show that the Eurodollar futures rate is always higher than the forward rate. That's the "negative convexity bias".