WTI CFD, or West Texas Intermediate Contract for Difference is a financial derivative that allows traders to speculate on the price movements of WTI Crude Oil without actually owning the physical commodity. CFDs are popular in financial markets because they allow investors to benefit from both up and down market conditions.
It is important to understand that CFD itself is not an asset but a derivative of different financial assets. In the financial markets depending on the provider, you can trade CFDs for instruments like stocks, indexes, ETFs, bonds, commodities, precious metals, cryptocurrencies, and forex. Get to know how CFDs work.
Investors can enter into a WTI CFD by agreeing to exchange the difference in the price of WTI crude oil between the opening and closing of the contract. This type of trading instrument enables participants to leverage their positions, potentially amplifying both gains and losses.
For example, if a trader believes that the price of WTI crude oil will rise, they can enter a long WTI CFD position. Conversely, if they anticipate a decline in prices, they can go short. The profit or loss is then calculated based on the difference between the entry and exit prices.
WTI stands for West Texas Intermediate, which is a type of crude oil used as a benchmark for the pricing of oil globally. It is produced from the Permian Basin in West Texas and southern Oklahoma and is considered to be of higher quality than other crude oils.
WTI contracts refer to standardized agreements to buy or sell a specified amount of West Texas Intermediate crude oil at a predetermined future date and price. These contracts are traded on commodities exchanges and serve as a way for producers, consumers, and speculators to manage the risks associated with fluctuations in oil prices.
There is one main type of WTI contract offered by Dukascopy - CFD futures contracts.
CFD futures are financial derivatives that represent an agreement between a buyer and a seller to exchange the difference in the price of an underlying asset from the contract's opening to its closing. CFD futures typically do not have fixed expiration dates. Instead, they are rolled over or renewed automatically unless the trader chooses to close the position.
WTI contracts play a crucial role in hedging strategies for oil producers and consumers, allowing them to lock in prices and mitigate the impact of market volatility.
Dukascopy provides a unique financial product, a Contract for Difference (CFD) known as LIGHT.CMD/USD. The LIGHT.CMD/USD CFD contract prices correlate with the WTI.
The minimum trade size for LIGHT.CMD/USD at Dukascopy is 100 barrels, corresponding to 1 contract.
WTI CFDs offered by Dukascopy are non-expiring spot traded derivatives. When futures contracts expire, Dukascopy automatically adjusts your position to reflect the new contract price.
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Once an account is set up, traders can follow these general steps:
Conduct thorough research on oil market trends, news, and factors influencing prices.
Decide whether to go long (buy) or short (sell) based on the market analysis.
Determine the amount to invest, considering leverage and risk management.
Execute the trade through the broker's platform, specifying entry and exit points.
Keep a close eye on market movements and adjust the position if necessary.
The price of WTI crude oil can be influenced by various factors, leading to periods where it may be perceived as relatively cheap compared to other benchmarks like Brent crude.
See current prices.
The choice between Brent and WTI often depends on various factors, including trading preferences, geographical location, and market conditions. Both Brent and WTI are major benchmarks for crude oil, but they have some key differences:
Brent crude comes from the North Sea, while WTI is extracted from the United States (primarily West Texas). The location of production can affect transportation costs and, consequently, prices.
Brent has a more significant impact on the global market due to its use as a benchmark in international oil pricing. Traders and investors often monitor both benchmarks, and the choice between Brent and WTI depends on specific market conditions, risk tolerance, and individual investment goals.