USOUSD – Swap Fee Notification

Dear Valued Client,

Due to the current uncertainty about future demand resulting from COVID-19 as well as supply due to potential future intervention by OPEC+ (and potential resolution of their current conflict) we are seeing back month contracts trade at much higher spreads than normal in the market. 

As a result, the overnight swap fees in cash products have become much higher particularly as they approached the rollover date of the front month expiring contract.

What is a cash product?
A cash product is an over-the-counter derivative product of the futures contract. USOUSD is such an example, which is a derivative of Oil futures product. Unlike Futures products, the Cash products trade continuously with no expiration date.

What is a swap fee and how is it calculated for the cash products?
When clients hold a cash product past end of the trading day, similar to currencies and metals, the product attracts swap fees. This is shown under the ‘Swap’ column on your trading account statement. The swap fee can be calculated as below:
Swap rate x Volume x Contract Size x Point x Number of Nights

What does the swap fee consist of?
The swap fees for the cash products consist of the following two important components:
● Overnight financing charges covering the borrowed money required to open your position, outside the initial margin you’ve paid, and
● A fair value price adjustment, an adjustment made to the product’s pricing based on the fair market value of the underlying security.

Why do the CL-OIL (futures contract) and USOUSD (Cash product) have such a large price difference currently?
Due to the uncertainty about future demand for oil because of the slowdown of growth across the world resulting from COVID-19, we are seeing CL OIL future contracts trade at higher prices than the USOUSD cash price than ever before.

As a result, the overnight swap fees in cash products have become much higher as compared to past weeks.

What are the main factors for the significant difference in prices across the two products?
The main factors contributing to the vast differences are as below:
● Between May and June WTI oil futures contracts, there is currently a price difference of approximately $6.30. When CL-OIL futures rolled over from May to June contracts on 17th of April, the price gapped up by the same magnitude.
● USOUSD or the cash WTI oil product is priced differently. In order to minimize price disruption and remove the impact of large price differences between the contract months, the USOUSD’s price ‘spreads out’ the price difference over the course of the next 28 days, until the next futures contract expiration.

Why is the current swap charge on USOUSD so high?

This is largely due to the fair value product adjustment applied to curb the large price gap in futures contracts.

As the price gap between May and June contracts is approximately $6.30. That translates to $6300 per standard lot (1000 barrels). USOUSD is now pricing off the June futures contract.

The price of USOUSD and CL-OIL will converge when it approaches June contract expiration on 15/05/2020. To achieve this, we expect USOUSD’s price to increase by approximately 23 cent or US $23 per contract (100 barrels) per day, in addition to any market related price movements.

This 23 cent or USD$23 is incorporated in USOUSD’s swap charges. Together with overnight financing charges, we expect USOUSD’s swap fees to be substantially higher than historical standards for an extended period of time.

We strongly recommend that you monitor positions carefully and maintain a sufficient account surplus throughout the lifetime of your positions in the account. If you do not wish for your position(s) to incur higher swap rates, you should consider to close your position prior to the daily rollover to avoid any unprecedented charge in the account.

Please consider the implications carefully and trade cautiously during this volatile period.

Kind regards,

Risk Warning

All investments entail risks and may result in both profits and losses. In particular, trading leveraged derivative products such as Foreign Exchange (Forex) and Contracts for Difference (CFDs) carries a high level of risk to your capital. All these derivative products, many of which are leveraged, may not be appropriate for all investors. The effect of leverage is that both gains and losses are magnified. The prices of leveraged derivative products may change to your disadvantage very quickly, it is possible for you to lose more than your invested capital and you may be required to make further payments. It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. Before deciding to invest in any financial product, you should carefully consider your investment objectives, trading knowledge and experience and affordability. You should seek independent professional financial advice for you do not understand the risks involved. You should only trade in Forex and CFDs if you have sufficient knowledge and experience of the risks involved in trading such products and if you are dealing with money that you can afford to lose. Gemini Capital Markets assumes no liability for any loss sustained from trading in accordance with a recommendation. This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

The Top and Bottom Performers data is provided by third party provider and TC technical analysis tool is provided by TRADING CENTRAL. The information in this website is of a general nature only and may contain advice that is not based on your personal objectives, financial situation or needs. GeminiCap is not responsible for the accuracy, adequacy or completeness of any information, analysis commentary, opinions and in the research report. And does not provide any form (whether express or implied) of warranty. Also, GeminiCap is not responsible for direct or indirect losses caused by any interruption, delay, omissions, and any consequences caused by the action relying on or referring to the content of the information.

Gemini Capital Markets ('GeminiCap') is a registered trading name of IX Capital Group Limited which is authorized and regulated by the Securities Commission of The Bahamas ('SCB') under Registration Number SIA-F188. We are permitted by the SCB to deal, arrange and manage securities. GeminiCap is governed and operates in accordance with the laws and regulations of The Bahamas. Our registered office is located at No. 109 Church Street, Sandyport, PO Box SP-62756, Marina Village, Nassau, The Bahamas.

Revisit Appointment

  • Our service time is 09:00-22:00,
    Monday to Friday (GMT+8)

User experience score