If you`re interested in trading crude oil, you may have heard of the WTI contract size. Understanding this important term can help you to make informed decisions when trading WTI crude oil futures.
What is a WTI Contract?
A West Texas Intermediate (WTI) contract is a type of benchmark crude oil contract traded on the Chicago Mercantile Exchange (CME). The contract represents 1,000 barrels of crude oil and is priced in U.S. dollars per barrel. WTI is known for its sweet crude oil, which has a low sulfur content and is easy to refine into gasoline.
What is a Contract Size?
Contract size refers to the number of units of the underlying asset being traded in a futures contract. In the case of WTI, the contract size represents 1,000 barrels of crude oil. This means that if you purchase one WTI futures contract, you are agreeing to buy or sell 1,000 barrels of crude oil at the contract`s expiration date.
Why is Contract Size Important?
When trading futures contracts, understanding the contract size is important because it determines the amount of the underlying asset that you are agreeing to buy or sell. This can impact the amount of margin you are required to put up, as well as the potential profit or loss you may incur.
For example, if you were to purchase one WTI futures contract at $50 per barrel, you would be agreeing to buy 1,000 barrels of crude oil at a total cost of $50,000 ($50 per barrel x 1,000 barrels). If the price of WTI crude oil were to rise to $55 per barrel at expiration, your profit would be $5,000 ($55 per barrel x 1,000 barrels – $50,000).
On the other hand, if the price of WTI crude oil were to fall to $45 per barrel at expiration, your loss would be $5,000 ($45 per barrel x 1,000 barrels – $50,000).
Understanding contract size can help you to manage risk and make informed decisions when trading WTI futures contracts.
In conclusion, the WTI contract size refers to the number of barrels of crude oil represented in a futures contract. Understanding this important term can help you to make informed decisions when trading WTI crude oil futures and manage risk effectively.