OTC market participants, taught by the bitter experience of black swans and Mondays, are again forced to take emergency measures to limit the trading of instruments against the backdrop of extraordinary volatility and market shocks caused by the coronavirus. After gold, the turn came to oil assets.
After the price of WTI futures for execution on Tuesday, April 21, fell below zero, at the moment the paper was trading below minus $40 per barrel, Brent fell by 20% in a day and fell below an unprecedented mark of $20 per barrel. This situation primarily indicates the weakness of the economies of oil consumers. Coronavirus has reduced demand for raw materials, and oil storages operate at maximum load. We can note that famous Interactive Brokers also lost millions in the crisis.
There is another critical point. The peculiarity of futures is that if the trader does not have time to close the current contract, then he is threatened with the physical supply of oil. To avoid this headache, traders do their best to sell their oil until the end of trading, when futures close and collapse the price.
Forex brokers stop trading in oil instruments
Against the backdrop of a sharp collapse in oil prices, the Forex broker LiteForex announced that the swap for oil contracts has grown due to the difficult situation on the market, and oil trading became available only at the close. That is, the broker stopped trading in oil instruments.
The LiteForex urgent message said that due to the problematic situation in the oil market, liquidity providers informed of a severe increase in the swap. They believed that in the near future trading in oil would be fully accessible again,
Another representative of the forex industry sent his clients a similar warning about the suspension of trade in the XTI/USD instrument. Considering the fact price of the oil became negative for the first time in the United States history to protect the interests of our customers they turned off the possibility of opening new XTI/USD transactions until further notice.
Protection of customer positions
InstaForex, an online broker familiar to consumers in the post-Soviet space, also announced drastic measures. According to the broker, this was the most significant decline in oil quotes for the entire existence of exchanges.
InstaForex explains that In order to protect client positions from dramatic losses, the company decided to stop trading and close all client positions since most of them were for purchase. To maximize the interests of customers, customer positions for sale are closed at the last available quote in the terminals – 0.07, and all positions for purchase will be closed at a higher quote – 2.00.
The Cyprus broker JFD Bank has also suspended the trading of WTI Crude oil instruments. Moreover, the provider announced that starting from the coming Friday, it will significantly increase the margin requirements for oil instruments, calling the aforementioned collapse in oil prices another black swan. Thus, requirements for Brent oil instruments are increasing from 25% to 75%, and for WTI brand from 25% to 100%.