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Can IG's oil price go negative?

Yes, it can in certain circumstances – and IG will continue to price a market that turns negative.

When can IG’s oil price go negative?

It depends on which oil contract you hold.

Futures contracts

IG's oil futures simply track the price of underlying oil futures, and we wrap a spread around it. This means that if the price of an oil future was negative, the IG price would also be negative.

For example, if a June expiry future goes negative, IG’s June expiry future on the same market would also go negative.

All futures contracts are priced independently of each other, so you could have an instance where June is negative but July is positive. If both went negative, you would see negative IG prices on both futures contracts on the trading platform.

Spot (or undated) contracts

IG’s spot market pricing is based on the two most liquid front month futures contracts available at the present time.

This means that there are three different scenarios:

  1. If both futures contracts used to price the spot contract remain positive, then the IG price will remain positive
  2. If both futures contracts used to price the spot contract are negative, then the IG price will become negative
  3. If one of the futures contracts is negative and one is positive (a more likely scenario than both futures being negative), the IG price could be either positive or negative depending on where our spot price is along the futures curve between two contracts. This could also occur if one of the futures contracts (most likely the front month) had an incredibly low price

How does oil’s price going negative affect my position?

If IG’s oil price goes negative, there is a chance the market will be set to ‘closing only’. This means that you’ll only be able to close positions to reduce your exposure, and you won’t be able to open new positions to increase your exposure.

Please note, you cannot currently set negative stops and limits on your position.

MT4

It’s worth noting that MT4 cannot display negative prices, so we will suspend oil trading on the MT4 platform if the market approaches or falls below zero. Any existing positions that have been placed via MT4 will be closed out at zero, if the price falls below this level.

How do I calculate margins on negative positions on oil markets?

Margin on oil positions is the higher of either:

a. 20% of the notional value of the CFD based on the opening level of the trade (fixed)

b. 80 points x trade size (no. of contracts x value per point) (this calculation will always determine the margin for any price below zero)

For example, if you have one contract on US Crude Oil (SD1), then the result at a price of 1394.4 would be calculated as such:

a. 20% of 1394.4 (opening price) x 1 (no. of contracts) x SD1 (trade size) = SD$278.88

b. 80 x 1 (no. of contracts) x SD1 (trade size) = SD$80

The higher value in this example is SD$278.88, which would be the margin.

Should US crude oil prices drop to 300, and you opened a trade, the margin would be as such:

a. 20% of 300 (opening price) x 1 (no. of contracts) x SD1 (value per point) = SD$60

b. 80 x 1 (no. of contracts) x SD1 (value per point) = SD$80

In this case, SD$80 would be the higher margin which would be used.

*For June 2020 Futures contracts:

It will be the larger of 500 points multiplied by your trade size or 20% of the notional value of your trade, based on the opening level. Please note that the margin will be fixed. This rate is already in effect for new positions opened as of today.

e.g. based on one contract on US Crude Oil (SD1) JUN-20 at 1394.4, the margin will be calculated as such:

a. 20% of 1394.4 (opening price) x 1 (no. of contracts) x SD1 (trade size) = SD$278.88

b. 500 points x 1 (no. of contract) x SD1 (trade size) = SD$500

In this case, SD$500 will be the higher value and will be used as the margin.

How is spot oil and overnight funding on spot oil priced?

You can read more here.

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