WTI Futures Contract Expiration: Everything You Need to Know
The world of finance and investments can be very confusing, but it doesn`t have to be. If you`re interested in trading WTI futures contracts, understanding the concept of expiration is of utmost importance. In this article, we`ll take a closer look at what WTI futures contract expiration means, including its impact on the market and the different ways you can manage your trades.
What are WTI futures contracts?
WTI stands for West Texas Intermediate, a type of crude oil that serves as the benchmark for oil prices in the US. Futures contracts, on the other hand, are agreements to buy or sell assets at a predetermined price and date in the future. WTI futures contracts work in the same way, with investors buying or selling them to lock in a price and protect against market fluctuations.
The expiration date of a futures contract is the date when the underlying asset must be delivered or settled in cash. For WTI futures contracts, the expiration date is usually the third Friday of the month in which the contract expires.
Impact of expiration on the market
As the expiration date for a futures contract nears, its impact on the market intensifies. This is because traders and investors who hold these contracts must decide whether to exercise their options or roll over their positions to future contracts. Depending on the market sentiment, this can lead to an increase in volatility and price fluctuations.
For example, when the expiration date for WTI futures contract approaches, traders who hold long positions may try to sell off their contracts to avoid taking physical delivery of the oil. This can cause a temporary drop in prices. Conversely, traders who hold short positions may try to buy contracts to cover their positions, driving prices up.
Managing WTI futures trades
If you`re new to trading futures contracts, it`s important to understand your options for managing your trades as the expiration date approaches. There are three main strategies: rollover, offset, and delivery.
Rollover involves selling off your current contract and buying a new one with a later expiration date, effectively extending your position without having to take physical delivery of the oil. This strategy is popular among traders who want to avoid the delivery process.
Offsetting involves closing out your current position by buying or selling an equal amount of contracts with the opposite position. This strategy is useful when you want to exit your position entirely or need to adjust your current position.
Delivery is the process of taking physical delivery of the crude oil on the expiration date. This strategy is only recommended for traders who have the capacity and infrastructure to manage the delivery process.
In conclusion, WTI futures contract expiration is a crucial aspect of trading WTI futures contracts. Understanding the impact of expiration on the market, as well as your options for managing your trades, can help you make informed decisions and better manage risk. As always, it`s important to consult with a financial advisor before making any investment decisions.