Following the chaos in oil markets on April 17 as the US price went negative thanks to over-supply and a lack of sufficient storage facilities, IS Prime says it has developed two new indices to which will mean clients do not need to be stopped out if and when the price goes negative again.
Many retail brokers’ systems are unable to support negative pricing, leading to them cutting clients out at $0 but then having to hedge in the futures market at negative rates, so IS Prime has developed a US Oil Index and UK Oil Index, both of which are launched at $100. This means if the US futures prices drops to -$37 as it did on April 17, the index for traders would be $63 and trading could continue (assuming sufficient margin was available).
“Many brokers have not recognised the truly catastrophic effect that negative rates can have on them,” claims Jonathan Brewer, managing partner at IS Prime. “Individual retail brokers could face losses in the hundreds of millions of dollars due to stop outs at 0 and subsequent hedges at a negative rate. Our new fully proprietary Oil Index allows brokers to offer pricing and execution in these products to their clients even if the market drops below 0 again, which is highly probable coming into the next futures expiry.”