{"id":175898,"date":"2020-09-30T16:11:00","date_gmt":"2020-09-30T20:11:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/trading-lessons\/an-introduction-to-oil-etps\/"},"modified":"2026-06-23T13:02:08","modified_gmt":"2026-06-23T17:02:08","slug":"an-introduction-to-oil-etps","status":"publish","type":"trading-lessons","link":"https:\/\/www.interactivebrokers.com\/campus\/trading-lessons\/an-introduction-to-oil-etps\/","title":{"rendered":"An Introduction to Oil ETPs"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><strong>New to Interactive Brokers?<\/strong><\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button has-custom-width wp-block-button__width-50\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/ndcdyn.interactivebrokers.com\/mkt\/?src=taETPIntroAcc&amp;url=%2FUniversal%2FApplication\" target=\"_blank\" rel=\"noreferrer noopener\">Open Account<\/a><\/div>\n<\/div>\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n<h3>An Introduction to Oil ETPs<\/h3>\nFor many investors, gaining exposure to crude oil prices is not always a simple task.\n\nPhysical investment needs operational know-how and expensive infrastructure and using derivatives can be complex.\n\nA simple alternative is investing in oil exchange traded products, or oil ETPs.\n\nLet&#8217;s look at the crude oil market and see how ETPs is fit in:\n\nThere are many different grades of crude, but two oil grade benchmarks dominate the global market:\n<ul>\n \t<li>Brent Crude and<\/li>\n \t<li>West Texas Intermediate.<\/li>\n<\/ul>\nETPs work by tracking total return indices underpinned by oil futures, typically based on the two major benchmarks.\n<h4>Oil Futures Contracts<\/h4>\nAn oil futures contract is an agreement to buy a specified amount of oil on a future date at a set price.\n\nContracts vary in duration, with maturities ranging from one month to three years or more.\n\nAt expiry, the contract can be settled physically by delivery of the underlying oil barrels, or financially based on the value of the contracts at expiry.\n<h4>Prices<\/h4>\nFor any given maturity, futures prices are a function of:\n<ul>\n \t<li>The spot price,<\/li>\n \t<li>Prevailing interest rates, and<\/li>\n \t<li>Oil storage costs.<\/li>\n<\/ul>\nAn ETP\u2019s price reflects what&#8217;s known as a total return exposure to the underlying oil futures investments after fees and costs are deducted.\n<h4>Total Return Components<\/h4>\nThe total return has three components:\n<ul>\n \t<li>The price return reflects price movements in the underlying futures contracts.<\/li>\n \t<li>The roll yield is the loss or gain caused by reinvesting or rolling a futures contract that&#8217;s nearing expiry to a longer dated one.<\/li>\n<\/ul>\nRolling is necessary for an oil ETP to maintain constant exposure to oil prices, and\n\nIt&#8217;s important to recognize the roll yield can be negative or positive.\n\nFor an investor who is long, the oil price rolling into a longer dated futures contract that&#8217;s priced higher, known as contango, the investor incurs a loss.\n\nAnd if the new contract is price lower, known as backwardation, the investor enjoys a gain.\n<ul>\n \t<li>Collateral yield, which comprises the final component of total return, is the interest earned on the cash value of the investment.<\/li>\n<\/ul>\nThat is why the returns from an ETP can be different from those quoted by mainstream sources.\n<h4>Other Factors<\/h4>\nAn additional factor is currency exposure.\n\nBecause crude oil is priced in US dollars, so too are oil ETPs.\n\nThat means non-dollar investors inevitably take on a currency risk.\n\nTo mitigate this, investors can buy currency-hedged oil ETPs.\n\nOil ETPs can be traded directly through online trading platforms and brokers or through financial advisors.\n\nThey provide a simple, cost effective way to acquire a total return investment in oil futures whilst avoiding the complexity of futures trading.\n\nFor more information, please visit:\n<ul>\n \t<li><a href=\"https:\/\/www.wisdomtree.eu\/en-gb\/resource-library\/etpedia\" target=\"_blank\" rel=\"noopener\">WisdomTree \u2013 ETPedia (Educational Guide to ETPs)<\/a><\/li>\n \t<li><a href=\"https:\/\/www.wisdomtree.eu\/en-gb\/products?subAssetClass=Oil%20and%20Energy\" target=\"_blank\" rel=\"noopener\">WisdomTree \u2013 Oil &amp; Energy<\/a><\/li>\n<\/ul>","protected":false},"excerpt":{"rendered":"<p>This lesson focuses on Oil ETPs and what investors should be aware of when deciding to invest in these products.<\/p>\n","protected":false},"author":850,"featured_media":221434,"parent":0,"comment_status":"open","ping_status":"open","template":"","meta":{"_acf_changed":false,"footnotes":""},"contributors-categories":[13714],"traders-academy":[13125,13128,13132],"class_list":["post-175898","trading-lessons","type-trading-lessons","status-publish","has-post-thumbnail","contributors-categories-wisdomtree-europe","traders-academy-beginner-trading","traders-academy-level","traders-academy-trading-lesson"],"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v28.4) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Archives | Traders&#039; Academy | IBKR Campus<\/title>\n<meta name=\"description\" content=\"This lesson focuses on Oil ETPs and what investors should be aware of when deciding to invest in these products.\" 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