Oil Leverage and Margin

Leverage on oil contracts 

FOREX.com's leverage for Brent Crude (UK Oil) and West Texas Intermediate (US Oil) oil contracts is set at 100:1. This means that for every $1 you have in your account balance, you have $100 in buying and selling power for oil trading. Keep in mind that leverage increases risk over full value trading.

How margin for oil trading works 

Margin is the amount of money you must have in your account to open and maintain a position. At 100:1 leverage, your margin factor is 0.01 (1%). This means that you are required to have a minimum cash balance of 1% of the total value of the oil positions you hold in your account at any one time.

At FOREX.com your risk is limited to the funds you have on deposit with us. There are no margin calls, so if your account balance falls below the margin requirement we will automatically close your positions to ensure that you cannot lose more money than you have in your account.

As an example:

The current West Texas Intermediate price is quoted as US Oil $51.55

You buy 1 lot (100 bbls) at $51.55.

Your margin requirement is 1% of your trade size, and is calculated as follows:

Trade size x price x margin factor (percentage)

100 (bbls) x $51.55 x 0.01 = $51.55 

Calculating Profit and Loss 

Profit and loss calculations for trading oil are fairly simple.

The smallest increment of an oil price is 0.01. The smallest trade you can place is a single lot, or 100 barrels (bbls). At this level, each pip is worth $1.00.

A change in price from 52.55 to 52.85 means a difference of 0.30, or 30 pips. If you are trading 1 lot, and each pip is worth $1, then the profit or loss from this price movement would be $30.00.

If you trade more than one lot, the value of each pip is simply multiplied by the number of lots you are trading. Rather than each pip being worth $1.00, if you are trading 5 lots then each pip is now worth $5.

Calculating Profit and Loss

Our online trading platform will automatically calculate the P&L of your open positions, but it is useful to understand how this calculation is made to understand your profit and loss potential on each trade.

To illustrate an Forex trade, consider the following two examples.

Let's say that the current bid/ask for EUR/USD is 1.4616/19, meaning you can buy 1 euro for 1.4619 or sell 1 euro for 1.4616.

Suppose you decide that the Euro is undervalued against the US dollar. To execute this strategy, you would buy Euros (simultaneously selling dollars), and then wait for the exchange rate to rise.

So you make the trade: to buy 100,000 Euros you pay 146,190 dollars (100,000 x 1.4619). Remember, at 1% margin, your initial margin deposit would be approximately $1,461 for this trade.

As you expected, Euro strengthens to 1.4623/26. Now, to realize your profits, you sell 100,000 Euros at the current rate of 1.4623, and receive $146,230

You bought 100k Euros at 1.4619, paying $146,190.

Then you sold 100k Euros at 1.4623, receiving $146,230.

That's a difference of 4 pips, or in dollar terms ($146,190 - 146,230 = $40).

Total profit = US $40.

Now in the example, let's say that we once again buy EUR/USD when trading at 1.4616/19. You buy 100,000 Euros you pay 146,190 dollars (100,000 x 1.4619).

However, Euro weakens to 1.4611/14. Now, to minimize your loses to sell 100,000 Euros at 1.4611 and receive $146,110.

You bought 100k Euros at 1.4619, paying $146,190.

You sold 100k Euros at 1.4611, receiving $146,110.

That's a difference of 8 pips, or in dollar terms ($146,190 - $146,110 = $80)

Total loss = US $80.