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WTI Oil Rollover Explained

Trading oil prices can be very lucrative. However there is a difference between Currency and Oil other then the trading hours.

 

Trading Hours

MT Code Market Name Open (GMT+2) Close (GMT+2) Break (GMT+2)
WTI WTI Crude Oil (Future) Monday 01:00 Friday 24:00 00:15-01:00

 

Futures Contract

Oil is a futures contract which have an expiry date hence traders would encounter roll-over.

 

What is rollover?

As futures contract expire, positions open during a particular month will be closed on expiration. If you have a view on your position and would like to carry it over the expiration date, you have to close the existing contract before expiration and open a position on the new contract. CFD brokers which offer WTI on MT4 closes your existing position on expiration and opens a new position on the new contract automatically. This process is called the ‘rollover’.

 

Why do I see a large swap due to the rollover?

In most cases there will be a price difference between the closing month contract and the opening month contract. As trader’s positions are rolled over into the new month, they may see profit or loss due to this price difference. However as this gain or loss is the result of differing contract prices and not due to market movements, the broker will net off this amount via swap.

Take note that you do have a pay spread again during roll-over for entering the new month contract.

 

Example 1:

Long position of 1000 barrels:
September Contract closes @ $110.00
October Contract opens @ $111.38
Cash adjustment of – $1,380 is made on account
Profit of $1,380 is made on open position
Net financial effect is zero.

 

Example 2

Short position of 2000 barrels:
September Contract closes @ $110.00
October Contract opens @ $111.38
Cash adjustment of +$2,760 is made on account
Loss of $2,760 is incurred on open position
Net financial effect is zero.

Information Source: Axitrader (http://www.axitrader.com/cfd/oil/)

WTI Roll Over

WTI Roll Over

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