How do Energy CFDs work?
Before you begin trading oil, you need to understand how these instruments work.
Futures contracts for oil are tied to delivery months — when physical oil must be delivered.
All of our Energy CFDs are based on those contracts, but WTICrude and BrentCrud match the real market more closely and often cause confusion among new traders.
You don’t risk ending up with oil barrels in your backyard, but the prices you trade are still based on futures contracts with specific delivery (expiration) months.
For instance, May 2020 contract prices may be a lot higher/lower than June 2020 contracts*.
On futures markets, you choose which month’s contract to trade.
When you trade WTICrude or BrentCrud with us, you trade only the front month’s contract, which is closest to delivery (expiration). This is not the case with WTISpot and BrentSpot, which are synthetic spot CFDs.
WTICrude and BrentCrud contracts are NOT freely interchangeable.
Trading ceases when the front month’s contract expires (because it’s time to start delivering physical oil), and we automatically switch to the next month’s contract to continue trading.
All positions still open at that moment get a credit/debit adjustment based on the price difference between the two months’ contracts (see calculation example at the end of the article).
The adjustment works as if you closed the position at the front month’s price and opened again at the next month’s price.
* This is because buyers of physical oil plan ahead. If, for instance, their storage is almost full, they stop buying oil with delivery the following month.