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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you can afford to take the high risk of losing your money.

Onyx Markets Uncategorised FAQ Non-Expiry Crudes

FAQ Non-Expiry Crudes

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Please note that below we discuss non-expiry Brent CFD’s explicitly, but the same is applies for non-expiry WTI, and any non-expiry CFDs. Non-expiry Brent CFDs (Contracts for Difference) offer traders a streamlined way to speculate on oil prices without the complexities of futures contracts. Here’s an overview of how they work and why they’re attractive to speculators:

How Non-Expiry Brent CFDs Work

  • Continuous Trading: Unlike futures contracts, non-expiry Brent CFDs don’t have an expiration date. This allows traders to hold positions for as long as they want without worrying about contract rollovers.
  • Price Tracking: The CFD price closely mirrors the price of the underlying Brent crude oil futures contract, typically the front-month contract.
  • Leverage: CFDs are leveraged products, allowing traders to control larger positions with a smaller initial investment.
  • Cash Settlement: Trades are settled in cash, eliminating the need for physical delivery of oil.

Differences from Futures Contracts

  • Continuous Trading: Unlike futures contracts, non-expiry Brent CFDs don’t have an expiration date. This allows traders to hold positions for as long as they want without worrying about contract rollovers.
  • Price Tracking: The CFD price closely mirrors the price of the underlying Brent crude oil futures contract, typically the front-month contract.
  • Leverage: CFDs are leveraged products, allowing traders to control larger positions with a smaller initial investment.
  • Cash Settlement: Trades are settled in cash, eliminating the need for physical delivery of oil.

Differences from Futures Contracts

  • No Expiration: Futures contracts have set expiration dates, while non-expiry CFDs can be held indefinitely.
  • Contract Size: CFDs often have smaller contract sizes, making them more accessible to retail traders.
  • Exchange vs. OTC: Futures are exchange-traded, while CFDs are typically over-the-counter products.
  • Regulatory Oversight: Futures markets are more heavily regulated compared to CFD markets.

Appeal to Speculators

  • Simplicity: Non-expiry CFDs eliminate the need for contract rollovers, making them easier to manage for long-term positions.
  • Accessibility: Lower margin requirements and smaller contract sizes make CFDs more accessible to retail traders.
  • Flexibility: Traders can easily go long or short without restrictions.
  • No Physical Delivery: There’s no risk of having to take delivery of oil, which is appealing to pure speculators.

CFD Swap Rate Adjustments

While non-expiry Brent CFDs offer simplicity, they come with daily holding costs known as “swap rates” or “overnight funding adjustments.” These adjustments reflect:

  • Futures Curve Movement: The basis between the front and next month futures contracts[8].
  • Admin Fee: A charge applied by the broker.

The formula for commodities overnight funding adjustment is:

  • Adjustment = nights held x (trade size x (basis +/- admin fee))

Where the basis is calculated as:

  • Basis = (P3 – P2) / (T2 – T1)
  • P2 = price of front future
  • P3 = price of next future
  • T1 = expiry date of the previous front future
  • T2 = expiry date of the front future[8]

This adjustment can be positive or negative, depending on the market structure (contango or backwardation) and the direction of your trade (long or short).

Conclusion

Non-expiry Brent CFDs offer a simplified approach to oil trading, appealing to speculators with their ease of use and accessibility. However, traders must be aware of the daily holding costs and understand how these can impact their overall profitability, especially for longer-term positions.

Please note for the avoidance of doubt, that all OMGO’s “Swap OMGO CFD” are monthly average expiry products, similar to ISDA Swaps, and thus have no such adjustment mechanisms.