Forex traders may notice USOIL listed in the market watch of the MT4 platform and wonder what it represents. USOIL is a Contract for Difference (CFD) based on WTI crude oil. Trading USOIL CFD offers the opportunity to engage in WTI crude oil trading with a margin requirement as low as $1.
This article will delve into the specifics of USOIL, differentiate between WTI spot CFD and futures CFD, and illuminate its connection with Forex trading. Key points to note:
- Both USOIL and Forex are CFDs, commonly available together on the same MT4 platform offered by Forex brokers.
- USOIL CFD is derived from the spot WTI market, allowing traders to speculate on spot WTI price movements.
- Spot WTI CFD offers greater flexibility compared to futures CFD, including tighter spreads.
What are CFDs on WTI Crude Oil
CFDs on WTI crude oil are derivatives based on WTI, allowing clients to trade WTI futures or spot prices without the need to open a position in the underlying futures or spot markets. There are two types of CFDs on WTI crude oil:
- WTI Crude Oil Spot CFD: This type has the WTI spot as the underlying market.
- WTI Crude Oil Futures CFD: This type uses the WTI futures as the underlying market.
USOIL is commonly used as the symbol for WTI spot CFD, as it reflects the price of the spot market. Unlike the futures market, where individual traders can participate in trading through micro WTI futures, the spot market is primarily an institutional market.
The invention of USOIL CFD has made WTI spot market accessible to everyone, with the tiny margin requirement of less than $1.
USOIL Forex Connection
USOIL is often mentioned together with Forex trading, due to the fact that both USOIL Forex belong to the same category of CFD trading. CFDs allow traders to speculate on the price moment of various financial products, including USOIL and Forex.
Many Forex brokers offer USOIL alongside their Forex offerings, through the popular MT4 platform, providing traders the convenience of accessing a broader range of markets with the same trading platform.
USOIL Symbol on MT4
Some traders may become confused about the symbol for WTI CFD, especially when trading with brokers offering both WTI spot CFD and WTI futures CFD on MT4 platform at the same time.
Firstly, since CFDs are not traded on a centralized exchange or venue, the symbol can vary among brokers. For instance, besides USOIL, many brokers use WTI directly as the symbol for WTI spot CFD.
Secondly, similar to the symbol for WTI futures, the symbol for WTI futures CFD typically includes an alphabet and a number at the end, indicating the contract month of the underlying futures. Therefore, traders can distinguish whether it is the CFD symbol for WTI spot or WTI futures based on this convention.
Pros & Cons on USOIL Spot
Compared to futures CFD, most individual traders opt for USOIL spot. To explain this choice, let’s explore the pros and cons of WTI crude oil spot CFD.
1). Pros of USOIL Spot
(1). No Expiry Date
Similar to its underlying market, WTI futures CFD also expires on a monthly basis. Open positions are automatically closed upon expiry, requiring traders to open new positions on the next contract.
This can pose a challenge for individual traders, many of whom may not be professional traders. Some may forget about the expiry date, resulting in unexpected losses.
In contrast, the spot market for WTI CFD does not have an expiry date. Traders can engage in continuous trading of WTI crude oil spot CFD without interruption.
(2). Tigher Trading Spread
As shown in the screenshot from the previous chapter, the spread of USOIL spot is typically lower than that of WTI futures CFDs, leading to significant cost savings for traders.
2). Cons of USOIL Spot
The primary disadvantage of USOIL spot trading is the additional cost incurred from swap charges for positions held overnight.
It operates similarly to swap in Forex trading. Depending on the trading direction, traders will either pay swap to the broker or receive swap from the broker for USOIL positions held over 5 PM EST. Typically, the swap fees traders pay are much higher than the interest they receive.
It’s also possible that traders will incur swap charges regardless of the trading direction. Additionally, swap fees can vary significantly among different brokers.
How to Trade USOIL on MT4
While most Forex brokers provide USOIL spot trading on MT4, not all of them set it as the default symbol in the market watch list. If you only see Forex pairs, you can follow the steps below to add USOIL to MT4:
Step one: Right-click in the Market Watch section of MT4, then select ‘Symbols’ from the dropdown menu.
Step two: Locate the category labeled Commodities or similar (it might be named Energies or others depending on the broker). Expand this category by clicking on the arrow next to it.
Look for USOIL or WTI from the expanded list. Double-click on the symbol, and it will be displayed in the market watch window.
Contract Size of USOIL CFD
There is no standardized contract size for CFDs on WTI Crude oil, however, the following is the most commonly used:
1 lot USOIL = 100 Barrels
If WTI is trading at $80, then one lot of WTI CFD would be valued at $80 × 100 = $8,000, which may not be affordable for many individuals. Consequently, numerous Forex brokers offer minimum trading volumes of 0.1 lots or even 0.01 lots to accommodate traders with smaller capital.
Leverage & Margin of WTI CFD
As mentioned previously, the minimum trading volume of WTI CFD can be as low as 0.01 lots, which only values at $80. In reality, traders only need to place a margin, which is much lower than the contract value.
The exact amount of the margin is primarily determined by the leverage provided by brokers. Below is the formula:
USOIL Margin = (Trading lots × Open price × 100) ÷ Leverage
The leverage can vary among different brokers. Let’s examine the margin required for 1 lot, 0.1 lots, and 0.01 lots under the leverage of 1:100, 1:200, and 1:500 respectively, assuming WTI is traded at $80:
| USOIL CFD Margin Requirement | |||
|---|---|---|---|
| 1 lot (100 barrels) | 0.1 lots (10 barrels) | 0.01 lots (1 barrel) | |
| 1:100 | 80 USD | 8 USD | 0.8 USD |
| 1:200 | 40 USD | 4 USD | 0.4 USD |
| 1:500 | 16 USD | 1.6 USD | 0.16 USD |
With a tiny margin requirement of just 0.16 USD, anyone can trade WTI crude oil through CFD.
Trading Cost on WTI CFD
Most brokers typically charge only the spread on WTI CFD trading. As illustrated below, most CFD brokers utilize two decimals in WTI pricing. There will be an Ask and a Bid price at the same time in the pricing, with the spread representing the difference between them.
The spread shown in the screenshot above is 0.03, or 3 pips. For instance, if we place a long position at this price, the position will be opened at the ask price of 81.01. Assuming the price remains unchanged and we decide to close the position, the long position will be closed at the bid price of 80.98.
Essentially, upon opening the position, we incur the 0.03 spread, which equates to 3 USD for 1 lot WTI CFD.
USOIL Trading P&L Calculation
Similar to futures trading, both long and short positions are allowed when speculating on the price fluctuations of USOIL, providing traders with opportunities regardless of whether the market rises or falls. We will explain how to calculate the profit and loss (P&L) in USOIL trading using examples of both long and short positions.
Assuming the market price is 81.00/81.03, this means the price to buy one barrel is $81.03, while the price to sell one barrel is $81.00. We have a balance of $200 in the account, and we plan to trade USOIL at this price.
Long Position Example
Open price: 81.03 / Trading lots: 0.1 lots (10 barrels)
Margin required: 81.03 x 10 barrels ÷ 100 leverage = $8.1
We decide to take profit when the market rises to $86.03.
Trading P&L = (86.03 – 81.03) x 10 barrels = $50
Short Position Example
Open price: 81.00 / Trading lots: 0.2 lots (20 barrels)
Margin required: 81.00 x 20 barrels ÷ 100 leverage = $16.2
We decide to take profit when the market falls to $78.00.
Trading P&L = (81.00 – 78.00) x 20 barrels = $60
USOIL Trading Hours
The underlying market, the WTI spot market, operates nearly 24 hours a day, as does USOIL CFD. Below are the details of the USOIL trading hours:
| USOIL Trading Hours (GMT + 8) | ||
|---|---|---|
| US Daylight Saving Time | US Winter Time | |
| Trading Hours | Mon 06:00 AM ~ Sat 05:00 AM | Mon 07:00 AM ~ Sat 06:00 AM |
| Daily Break | 05:00 AM ~ 06:00 AM | 06:00 AM ~ 07:00 AM |
There is only a one-hour break in the early morning hours of the Asian trading session. This presents a significant advantage for individual traders, as it allows them to engage in trading during their non-working hours.
MT4 Brokers Offering USOIL
1). ThinkMarkets
| Trading symbol | WTI | Max leverage | 1:500 |
| Contract size | 100 barrels | Regular spread | 0.03 |
| Platform | MT4/MT5/ThinkTrader | Min trading lot | 0.1 lots |
| Regulation | UK FCA, AU ASIC, Japan FSA, NZ FMA, Cyprus SEC, South Africa FSCA | ||
2). INFINOX
| Trading symbol | USOUSD | Max leverage | 1:1000 |
| Contract size | 100 barrels | Regular spread | 0.05 |
| Platform | MT4/MT5 | Min trading lot | 0.01 lots |
| Regulation | UK FCA, South Africa FSCA, Bahamas SCB, Mauritius FSC | ||
3). Exness
| Trading symbol | USOIL | Max leverage | 1:200 |
| Contract size | 1000 barrels | Regular spread | 0.03 |
| Platform | MT4/MT5 | Min trading lot | 0.01 lots |
| Regulation | UK FCA, Cyprus SEC, South Africa FSCA | ||
4). Oanda
| Trading symbol | USOIL | Max leverage | 1:100 |
| Contract size | 1000 barrels | Regular spread | 0.03 |
| Platform | MT4/MT5/FXTRADE | Min trading lot | 0.01 lots |
| Regulation | US NFA, UK FCA, AU ASIC, Japan FSA, Singapore MAS | ||
5). Pepperstone
| Trading symbol | SpotCrude | Max leverage | 1:100 |
| Contract size | 100 barrels | Regular spread | 0.03 |
| Platform | MT4/MT5 | Min trading lot | 0.01 lots |
| Regulation | UK FCA, AU ASIC, Cyprus SEC, Dubai FSA | ||
