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#1 29-04-2020 18:36:08

johnedward
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How did brokers react to the recent negative oil prices?

How did brokers react to the recent negative oil prices?


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Last week, history was made on oil prices, and not in a good way, the WTI (West Texas Intermediate) futures for the month of May fell into negative territory.

U.S. broker Interactive Brokers says that it suffered an aggregate provisional loss of approximately $87 million after fulfilling its variation margin settlement obligations with the respective clearing houses on behalf of its clients.

However, as the company founder and president pointed out, Interactive Brokers held around 15% of the current interests in the May oil contract. This suggests that other brokers suffered even bigger losses than Interactive Brokers, as the rest of the outstanding interest is facing losses.

When CNBC asked the CEO if there will be serious industry-wide difficulties with oil futures, he replied, "There are about half a billion dollars in additional losses which someone 'one is sitting on... and I don't know who these people are. "

Amazingly, GAIN Capital has also temporarily suspended withdrawals from some of its clients, as the unprecedented action on last week's oil price led the brokerage firm to review certain positions held by its traders.

In response to the fall in the price of oil, many brokers have decided to close positions on behalf of their clients or take other measures to try to limit losses.

The main reasons for this decision are that the MetaTrader infrastructure is not designed to bear negative prices and that it is not sure that it can support margin trading on such a volatile asset.

Admiral Markets also detailed its emergency plan amid historic price movements in the U.S. oil market. Specifically, Admiral Markets has told traders that if CFDs on crude oil fall below $4, they will activate "Close Only" mode and stop accepting new orders for the product. If the price of CFDs on crude oil drops to $0, Admiral will stop fixing the price of these CFDs and close all positions at current market prices, while canceling all pending orders.

Dukascopy, a lesser-known Swiss broker, has also introduced temporary measures. Namely, the company limited transactions on LIGHT.CMD/USD, preventing investors from being able to increase their position sizes.

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