Interactive Brokers with a loss of USD 88 million after the crash on the oil market

It is not just investors who focus on rising oil prices that have lost their assets in recent days. It turned out that brokers also have to swallow a bitter pill. Interactive Brokers has just announced that due to the dramatic drop in crude oil contract prices below zero, the American company has booked a loss of ... USD 88 million. All because of negative customer balances.

Brokers offering trading in crude oil - CHECK RANKING

After falling oil prices, which have been observed for a long time, many investors have weathered the chance for good earnings in the coming weeks. Not only the small players began to fill their wallets with long positions in the hope of a quick rebound up. Oil prices after all, they were absurdly low, even falling below the cost of extraction. Additionally OPEC +, ie the countries which extract the most oil, finally got along and decided to cut production in May, which always increased the price of "black gold".

Few investors, however, took into account important facts. Even if the demand for oil has not increased recently, and lower production is expected to start only in May. Extraction has not been limited, and by then something has to be done with the oil pumped in the shafts. It is also important that its storage and transport really costs a lot. On the other hand, the majority of tankers is already full, some countries have already filled all reserve tanks, so the costs of expensive storage have increased even more dramatically.

Why can oil be negative? - explanation

The effect we had the opportunity to see in recent days. The fall in oil contract prices to be delivered in May was not surprising, but its scale surprised everyone. It was a decrease not recorded in the history so far, which meant that the May contract was even negative and exceeded the value of -40 USD per barrel. It was simply more profitable to pay extra for someone to take oil because there were no willing people. The less willing, the more had to be paid for receiving it.

88 million loss of Interactive Brokers

It is not difficult to guess that many small investors lost such a huge discount. In many cases, invoices have been reset and those that have not been protected against a negative balance have been charged additionally. And that is what made brokers lose their business too. One of them has just reported the amount of losses.

Interactive Brokers admitted that the declines ended with a loss of USD 88 million. It is because of customers who did not have stop losses on long positions for oil contracts. When the price was falling, they did not close their positions or pay extra on deposits. As a result, the losses quickly and significantly exceeded the capital accumulated on the accounts.

However, the American broker had to settle contracts that he concluded on behalf of his clients. After adding up the losses, it turned out that he had to pay USD 88 million to them. From own resources.

$ 500 million in broker losses

“We had around 15% of our open positions on our crude oil contract for May. It's not that much, because we know that other brokers had even more, so they probably suffered much bigger losses than Interactive Brokers. This is a new situation for everyone and we have to learn how to deal with such cases, but the loss will not undermine the financial foundations of the company. " - Thomas Peterffy, founder and president of Interactive Brokers assured on CNBC.

He also added that - in his opinion - the total loss of brokers offering crude oil futures contracts could amount to as much as USD 500 million, as Brent crude oil fell 35 percent last week. which is the largest weekly decline in the history of its quotation.