A CFD is a financial derivative that allows traders to speculate on the price movement of an asset without owning it. The trader enters into a contract with a broker, agreeing to exchange the difference in the asset's price from the time the contract is opened to when it is closed.
Contract Purpose
This outright contract allows market participants to:
- Gain direct exposure to the price of West Texas Intermediate (WTI) crude oil in North America
- Hedge against price fluctuations in the North American crude oil market
- Speculate on the future price direction of WTI crude oil
- Manage price risk for physical crude oil transactions linked to WTI benchmark
Market Significance
Benchmark Status: Represents the primary crude oil pricing benchmark for North America
Global Reference: Widely used as a reference price in global energy contracts and physical oil transactions
Regional Indicator: Provides critical insights into supply and demand dynamics for crude oil across the Americas
Trading Benefits
- Price Discovery: Offers a transparent mechanism for determining fair value of WTI crude based on market conditions
- Risk Management: Enables effective hedging against volatility in North American crude oil prices
- Market Access: Provides streamlined exposure to one of the world’s most significant crude oil benchmarks
- Monthly Averaging: Settlement based on arithmetic mean throughout the expiry month helps manage daily price volatility
This contract is particularly valuable for North American oil producers, refineries, industrial consumers, and commodity traders active in the WTI market. It serves as an essential tool for companies needing to hedge their exposure to US crude prices or implement trading strategies based on WTI price movements. The contract’s structure makes it accessible through the MT5 platform with reasonable contract sizes suitable for various market participants.
