wanna do a couple of contracts on Brent/WTI

Discussion in 'Commodity Futures' started by econometrics, Jun 14, 2011.

  1. which retail brokers are good?
  2. bone

    bone ET Sponsor

    First, please look up the performance bond margin requirements on the CME or ICE-Europe website - it is not a cheap trade to margin.

    Secondly, it is a pure divergence trade; fading it is certain death.
  3. You can trade it at Interactive Brokers, although they are not the best for it I am sure because they lack implied spreads and for other reasons (high margins in deferred months - see another post I am making).

    If you do not already have an account at IB, I would look elsewhere such as one of the brokers supporting Rithmic routing and execution.

    You need to place both sides at ICE to get the spread margin. The IB symbols are WTI and COIL. You can place it as a combo order which is not as ideal as a true spread order but will suffice.

    The symbols are different on other platforms.

    There are significant risks to this trade, as has been pointed out.

    Look carefully before deciding which month to trade against which. Remember that WTI is in contango but Brent is in backwardation. The front month of WTI is much more volatile than deferred months and may not be the best one to use in a spread.

    If we have a large stock market crash or recession in particular, near month WTI contracts may go into severe backwardation.
  4. Do you roll the two legs at the same time?
  5. Not necessarily. I would not leave any leg too close to expiration as it can behave erratically.

    Actually I have multiple contracts and legs and I move them around in different months.

    At this point, the spread has already come in quite a way and I have wound down a good portion of my positions.

    Watch out, it could widen out again. I am not sure that it will but it could. Personally I hope it does so that I can start increasing my position again.
  6. I meant into a much deeper contango in that scenario...