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CMC introduce forward contracts

CMC Markets has today announced a further upgrade to the Next Generation trading platform.  This upgrade is the culmination of extensive client feedback requesting additional trading products and increased functionality.

Trade forward contracts

Headlining this platform upgrade is the introduction of forwards. CMC Markets’ clients can now use the Next Generation platform to trade forward contracts across treasuries, indices and commodities. Clients will be able to use the platform functionality to manually roll their positions forward, request them to be auto-rolled or cash settled via the platform; a feature not usually offered by other CFD and spread betting providers.

Other capabilities of the upgraded platform include:

– Additional chart features including extended Pivot Points
– Enhanced price quote windows
– Pattern Recognition ‘quick link’ history button
– Price ticker to stream your watchlists
– Updated product library design and filtering options
– Coming soon: Hundreds of additional equities (spanning global and local equities) will soon be added to the platform

Colin Ciesyznski, Senior Market Strategist at CMC Markets, describes below a possible strategy of trading oil via forward contracts and pairs trading.

“Pairs trading involves taking a long position in one market and a short position in another market in order to capture changes in relative pricing between the two. Pairs trading is what the currency markets are based on, although it’s also regularly applied to stocks and commodities.

One particular pairs trade that has become very popular over the last two years is trading the differential between US crude oil and UK crude oil. Up until the Arab Spring started in early 2011, WTI and Brent crude traded very closely together, usually within a dollar or two in price.

However, over 2011 and 2012, the risk of supply disruptions from political changes in the Middle East has caused the political risk premium on UK crude to expand dramatically, while increasing North American oil production has capped the political risk premium lower in the US.

Because of the differing supply situations, UK crude oil has tended to outperform when political tensions flare up (UK crude has tended to rise faster) while US crude has tended to outperform when tensions ease (UK crude falls faster).

In addition to giving clients the chance to roll over to the next contract when it is convenient or opportunistic to do so, forwards give you the opportunity to capture changes in the shorter and longer term outlook for oil.

There are two ways to use forwards to trade the spread between US crude and UK crude. If a trader thinks there is a specific event coming that could impact the differential, they could pair the two same-month contracts of the two oil commodities (for example, trade November UK crude against November US crude).

Many clients are familiar with the concepts of pairs trading in currency and energy markets. The addition of forward contracts to the CMC Markets Next Generation platform may create new opportunities to capture differences in relative pricing between commodities and across time.”

 

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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