Large oil producers led by Saudi Arabia said on Sunday that they will cut production by a total of more than 1 million barrels per day starting next month, a surprising move that pushed up crude oil prices.
The ups and downs of crude oil always affect financial markets.
What exactly is the price of crude oil that professionals often refer to?
How can the average investor trade crude oil?
What are the pros/cons of trading crude oil?
This article answer your questions!
1. The 2 most commonly traded crude oil futures - WTI & Brent
WTI crude oil, West Texas Intermediate, is the most liquid and actively traded crude oil contract in the world. The ticker is $WTI Crude Oil - main 2305(CLmain)$ . All crude oil produced in or sold for the US is valued against the WTI crude oil.
WTI crude oil futures, which are listed on NYMEX, a division of global futures and derivatives giant CME Group, have the world's strongest liquidity, largest positions and volume, and support physical settlement.
Brent oil $Brent Last Day Financial - main 2306(BZmain)$ is the second largest futures contract in cmegroup's oil benchmark product family. Unlike WTI, this is a financially settled futures based on the Brent index.
The oil price that professionals and the media generally refer to is the price of WTI crude oil futures.
2. Crude oil futures 24h quotes: more forward-looking than ETFs
WTI crude oil futures are traded in 23 hours during trading day, from SGT 06:00 Monday to 05:00 Saturday. Therefore, investors can trade crude oil in 23 hours from Monday - Saturday.
During weekend, investors can also check the latest quotes in 24h/7days.
When there is breaking news over the weekend, investors can also see the latest quotes on the platform in time even on weekend. Compared to ETFs, the quotes are closer to the market and more forward-looking.
3. Risk Alert
1) High margin requirement
As shown in the chart below, the margin for one futures contract needs about $9,000, which takes up much capital.
2) High volatility risk - P/L $4750 in a day
As shown in the chart below, the minimum fluctuation unit of $WTI Crude Oil - main 2305(CLmain)$ contract is 0.01 = $10.
For example, on April 3, $WTI Crude Oil - main 2305(CLmain)$ rose $4.75, the profit of the day = 4.75/0.01 * 10 = $4750
3) Risk of forced closing of positions
Crude oil futures are settled by futures brokers on a daily basis. If investors can’t meet the margin requirement in a timely manner, investors will face the risk of forced closure of positions, incurring huge losses.
Overall, futures market is much riskier than the stock market, and investment requires caution.
4. Micro contracts $Micro WTI Crude Oil - main 2305(MCLmain)$ suitable for the average investors
Some tigers would like to trade crude oil futures but can’t meet the high threshold for margin and the high volatility of crude oil futures.
Micro contracts have lower margin requirements and lower profit/loss ranges, while maintaining comparable leverage. This is a good option for investors who do not have a large amount of capital and cannot afford large retracements to participate in crude oil trading.
Micro crude oil contracts are also preferred if you believe that the current crude oil market trend is uncertain and want to participate in crude oil trading with minimal capital and minimal leverage.
Micro WTI crude oil futures are 1/10th the contract size of the benchmark WTI crude oil futures contract and can be cash settled.
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