FTX, a crypto derivatives platform, has jumped to offer oil futures contracts following the historic drop in the American oil prices.
These oil contracts at FTX will expire at the spot West Texas Intermediate (WTI) prices, plus $100. The additional $100 has been added to the price as a buffer to protect against any negative settlement rate.
“OIL contracts are futures that expire to the spot price of WTI oil. In particular, a contract expiring on day X will expire to the published Cushing, OK WTI Spot Price FOB here for day X, plus 100,” FTX stated. “We add $100 to each contract in case the spot price goes negative.”
Historic price drop
On Monday, the futures price of WTI benchmark went in the negative territory for the first time, before settling at minus $37.63, and sinking as low as minus $40.32.
This also forced many brokers to suspend the May futures to minimize their risk exposure to the market.
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Despite the $100 buffer, FTX clarified that “if the spot price of oil goes below minus $100, FTX OIL contracts can theoretically expire negative.”
The announcement also clarified that FTX clients willing to trade the crude oil futures need to clear at least level 1 KYC on the platform. This is to ensure that the trader is not a resident of the United States, Canada, the European Union, the United Kingdom, Singapore, the UAE, Cambodia, Turkey, and China, where the services are not available.
The exchange will also check the IP address location to restrict its services.
Launched last year, FTX has become one of the well-known crypto derivatives exchanges with its perpetual contracts. It also raised $8 million last year and is backed by giants like Binance, Consensus Lab, and Proof-of-Capital.
The crypto derivatives exchange is also planning to launch token-based oil futures “soon.”