Curriculum·R401 Derivatives Foundations·about 33 min
The instrument set
By the end of this lesson you can
- →Distinguish the four instruments by what obligation each one creates
- →Explain why a futures position can lose more than the capital committed to it
- →Compute the loss on a long futures position that settles below zero
- →Read a contract specification and name the four fields that decide your exposure
Senior · enrolled learners
This lesson opens with The May 2020 WTI contract, 20 April 2020.
- What happened
- On 20 April 2020 the West Texas Intermediate May futures contract fell $55.90 in a day and settled at negative $37.63 per barrel, the first time the WTI futures price had fallen below zero since trading began in 1983. The contract obliges physical delivery at Cushing, Oklahoma, where storage was all leased and, according to traders, essentially full, so a holder of a long position who could not take delivery had to pay a counterparty to take the obligation away. At Interactive Brokers the problem reached hundreds of customer accounts holding long WTI or E-mini crude (QM) futures into settlement. Its systems did not display negative prices, customers could not place negative-priced limit orders, and internal minimum margin requirements were not correctly enforced before execution. The firm initially determined customer trading losses to exceed $82.57M. It paid the clearinghouses the variation margin its customers owed, then compensated affected customers, and recognized an aggregate loss of approximately $104M. The CFTC found the firm had been on notice of the possibility of negative prices before 20 April and ordered a $1.75M penalty for failing to diligently supervise.
- The decision point
- The lesson's reading: the loss did not require anybody to misjudge the value of oil. The next contract month, June, was still priced at $11.57 a barrel on 21 April. What the May longs held was not exposure to the price of oil. It was an obligation to receive barrels at a place with no room for them, on a date, and the contract specification said so before anybody entered.
- Recorded loss
- $104,000,000
What you will be able to answer
- →What are the four instruments?
- →Why can a futures long lose more than it paid?
- →What was that as a multiple?
- →Which four specification fields decide your exposure?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://www.cftc.gov/PressRoom/PressReleases/8432-21
- https://www.everycrsreport.com/reports/IN11354.html
- https://www.sec.gov/Archives/edgar/data/1381197/000138119720000026/ibkr_8k-20200630er.htm
- https://www.financemagnates.com/forex/brokers/interactive-brokers-loss-from-oil-collapse-swelled-to-104-million/
- https://www.eia.gov/todayinenergy/detail.php?id=46336
- https://www.coinglass.com/learn/2025-annual-report-en
- https://www.coingecko.com/learn/october-10-crypto-crash-explained
Confidence high·Volatility low·Reviewed 2026-10-22·Owner unassigned
Contested
The settlement price is reported as both negative $37.62 and negative $37.63 depending on the source: the Congressional Research Service note of 22 April 2020 gives a close of negative $37.62, and the CFTC release and Interactive Brokers' own earnings release give negative $37.63. The one cent does not affect any argument here. The $55.90 fall in the day, the June contract at $11.57 on 21 April, and the description of Cushing as essentially full according to traders are from the CRS note; the first negative price since trading began in 1983 is from the EIA; the $82.57M initial determination and the $1.75M penalty are from the CFTC; the approximately $104M aggregate loss is from Interactive Brokers' second-quarter 2020 earnings release filed with the SEC, which also says the firm met its customers' variation margin with the clearinghouses. The CFTC release does not give the $104M. Finance Magnates reported a provisional $88M loss revised to about $104M.
The long and short split of 10 October 2025 is CoinGlass's own estimate, in its 2025 annual report, of approximately 85 to 90 percent long. The same report says the actual scale likely approached $30 to $40B once the disclosure timing of certain platforms and feedback from market makers are counted, so the $19B is a floor. The 1.6 million accounts and the description as the largest liquidation in crypto history are CoinGecko's, not CoinGlass's. Every figure here carries the name of whoever produced it.
This lesson uses an incident outside crypto deliberately. Per the academy's positioning the subject is instruments and their obligations, and the clearest documented case of a specification producing a loss nobody modeled happened in oil. The mechanism transfers exactly.
J304 owns collateralized borrowing and liquidation at Junior level. R402 owns liquidation mathematics in full. This lesson owns the instrument taxonomy only. Keep the split and do not derive a liquidation price here.