IS Prime presented a new solution in response to the huge risk of spot oil prices falling to negative values again. The Prime of Prime and Liquidity Provider developed new UK & US Oil Index aiming to oppose the inability of brokers’ trading systems to accept negative rates.
The last couple of weeks, the overwhelming effects coronavirus-induced lockdown on economies and war on oil triggered dramatic fall in the price of oil. Ten days ago, on 17 April, oil prices plunged to $40 bellow zero for a first time in history. The Covid-19 pandemic significantly reduced the oil consumption and led to oversupply and lack of storage capacity resulting in critical losses by some of the largest retail brokers. Their systems stopped clients out at 0 and hedged in the futures market at a negative rate.
To cope with the inability of many trading systems to accept negative rates, IS Prime has developed two new proprietary products the US Oil Index and the UK Oil Index. The Indices are rebased at $100, meaning that in case of IS Prime’s proprietary spot price fall into negative value, e.g. $-5USD, the pricing will reflect this at $95, effectively preventing stop outs while reflecting the market moves the full underlying volatility of Oil.