By far, my favorite CME Group contract to trade is WTI Crude Oil. There are no exogenous fundamentals with WTI, which means no CEO changes, accounting scandals, or earnings reports to worry about. Instead, it’s an entire case of supply and demand. How much crude is there, and how much of it is now consumed by crude consumers? In addition, there are several noteworthy movements in the oil markets.
As previously said, crude oil is defined by supply and demand, which determines how it is traded. Sideways channels, followed by extended trends, followed by sideways markets, can be seen on a long-term WTI chart. Rinse, wash, and repeat. You might be able to ride a trend for an extended period if you catch it early. This is a compelling asset for a trader who understands risk management. So, why aren’t more people exchanging it?
It could be related to the size of the benchmark contract for many market participants. A standard WTI Crude Oil contract has a notional value of 1,000 barrels of oil multiplied by the agreed-upon futures price, and it is also physically deliverable when it expires. As a result, many market players have found WTI crude to have an excessively high margin requirement, and it has been chiefly employed as an institutional hedging tool.
The regular WTI contract’s dollar risk is $2,600, with a possible gain of $3,400. Someone with a $10,000 account, on the other hand, would be risking 26% of their total budget worth by making this trade. Even the E-Mini Crude contract, with half the risk in dollars and half the possible gain, would account for 13% of the account’s total value. For some traders, that is still an excessive margin. So in comes CME Group’s new Micro WTI futures, which are set to go live on July 12, 2021, subject to regulatory approval.