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 negative settlement in its history. The contract obliges physical delivery at Cushing, Oklahoma, and with storage there effectively full, holders of long positions who could not take delivery had to pay counterparties to take the obligation away. Interactive Brokers had hundreds of customer accounts long the WTI and E-mini crude contracts. Its systems did not display negative prices and would not accept negative-priced orders, and internal minimum margin requirements were not correctly enforced before execution. The broker initially estimated customer losses above $82.57M and ultimately covered $104M. The CFTC found the firm had been on notice that negative prices were possible and ordered a $1.75M penalty for supervision failures.
- The decision point
- Nobody involved misjudged the direction of oil. The long positions were correct that oil had value and would trade above zero again within weeks. What they had bought 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.financemagnates.com/forex/brokers/interactive-brokers-loss-from-oil-collapse-swelled-to-104-million/
- https://www.eia.gov/todayinenergy/detail.php?id=46336
Confidence high·Volatility low·Reviewed 2026-08-07·Owner unassigned
Contested
The settlement price is reported as both negative $37.62 and negative $37.63 depending on the source, with the CFTC order and the CME settlement using negative $37.63. The one cent does not affect any argument here.
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 collateralised 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.