What are the actual mechanics of an oil future trade, especially at the moment when the price goes negative?
I hope this is on-topic. It's not directly about personal finance, but it's not an academic economics question either. It is about what happens behind the scenes.
The question is motivated by the recent brief negative price of short-term oil futures. I understand why it happened - storage became so hard to find that people didn't want to take possession of the oil. But I am curious about the moment where the first person realized that they were going to have to pay someone to take the contract. Are all trades settled electronically, so that someone just had to swallow hard and enter a negative number in the asking price box on a screen? Or would phone calls have been made?
Whenever I try to research this online, I get an investor's perspective rather than a trader's perspective, because there are far more investors than traders, and there are far, far more amateur or beginning investors than there are traders who need this explained. But I would like to understand what that inversion would have looked like from a trader's perspective, that is, from the point of view of the person (if there is still such a person) who actually matches the buyer up with the seller.
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At least in the market in question, there isn't such a person. Trading pits were closed a few years back, and trade flow via brokers is typically for large trades in less liquid parts of the curve. Anyone executing a trade through a broker in the prompt crude oil contract either has phenomenal size they'd prefer to get matched up with a bank or some other large institutional player to avoid moving the market on-screen...or they're just trying to give them some business. I'd say +95% of trading activity in prompt energy commodities is executed electronically (my guess).
Per that moment when things went negative, it wasn't out of the realm of possibility even before that happened. Also the state of storage didn't change at that moment (it was public knowledge that we were filling up days before), sentiment, and fear of being left holding the bag on an expiring contract took a temporary but very sharp dive (Same contract was up ~ from its lows the previous day..storage wasn't suddenly in abundance).
The only thing that would have happened at that moment is traders continue trading electronically with those short trying to look cool and contain their excitement while the longs were probably kicking themselves for not getting out earlier in the day.
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