Following the biggest crash in the history of oil on Monday which saw oil prices for May futures crash to negative prices, some brokers are taking measures in order to protect their customers as well themselves from heavy losses.
INTL FCStone, Marex Spectron based in London, TradeStation Securities Inc, TD Amitrade, among other brokers put in some control measures over their customers’ transactions.
On Monday oil traders paid buyers as much as $40 per barrel for Western Texas Intermediate May future contracts so that they won’t have to take delivery of the oil. WTI with an opening price was $18 closed at minus $37.63 on Monday. This represents a massive 309% loss in a day.
Heavy losses were recorded by some retail investors following the fall. On Tuesday, a U.S brokerage firm – Interactive Brokers Group (IBKR.O) said it took an $88 million loss to cover accounts that had to be liquidated.
In a note on its website, AMP Global based in Chicago said “due to certain anomalies” that is affecting futures contracts for oil and mini-crude, any positions – both long and short – are subject to liquidation.
In a similar move TD Ameritrade informed customers that only closing trades in June and July U.S. crude futures contracts as well as in all U.S. crude options contracts would be allowed.
In a statement J.B. Mackenzie, Managing Director in futures and Forex at TD Ameritrade Said, “We made this decision based on the volatility and liquidity in the crude markets over the last week. This allows those markets to continue to return to their prior liquidity and volatility levels,”
INTL FCStone Financial Inc futures division, in a memo told clients whose account is less than $5million that they would not be allowed to place any new trades in Nymex West Texas Intermediate and ICE Brent crude contracts for June delivery with effect from Wednesday. Meanwhile, there is an ongoing review for accounts with more than $5 million
The company’s spokes person said “given the extreme and unpredictable volatility, in the markets, we are taking action to protect our smaller clients and make sure they are aware of the risks they are assuming” according to several international news media.
Following Monday oil price crash, CME Group, the exchange operator have been criticized by some market participants for not stopping trade to limit the loses. However, it defended it’s action of leaving the market open, saying that it’s market worked as designed, by factoring in all the forces that affect the market prices.
CME spokesperson said that the exchange had in early April warned about the possibility of negative oil prices. “CME Group accommodated negative futures prices on April 20 so that clients could manage their risk amid dramatic price moves, while also ensuring the convergence of futures and cash prices,”
Oil prices have been heavily impacted by the Coronavirus pandemic which triggered lockdowns, movement restrictions and the slowdown of economic activities across the globe. There are 2,744,511 confirmed cases of Covid-19 with 192,982 deaths as at 16:19 GMT globally according to John Hopkins Coronavirus Resource Center
As a result, the demand of oil which was estimated at 100 million barrels per day have plummeted by about 30%. Thus triggering the slump in prices as producers offer oil on discount due to limited storage capacity.
Written by
Ifunanya Ikueze
