Markets Home

Active trader

Hear from active traders about their experience adding CME Group futures and options on futures to their portfolio.

Find a broker

Search our directory for a broker that fits your needs.

CREATE A CMEGROUP.COM ACCOUNT:

MORE FEATURES, MORE INSIGHTS

Get quick access to tools and premium content, or customize a portfolio and set alerts to follow the market.
Market Data Home

Real-time market data

Stream live futures and options market data directly from CME Group.

E-quotes application

Access real-time data, charts, analytics and news from anywhere at anytime.

CME DATAMINE:

THE SOURCE FOR HISTORICAL DATA

Explore historical market data straight from the source to help refine your trading strategies.
Services Home

Uncleared margin rules

Understand how CME Group can help you navigate new initial margin regulatory and reporting requirements.

Calculate margin 

Evaluate your cleared margin requirements using our interactive margin calculator.
Education Home

Now live: ESG solutions

Manage the risk associated with renewable energies, environmental change and sustainable investments.

Create a CMEGroup.com Account: More features, more insights

Get quick access to premium educational content, including expert-led webinars, a real-time trading simulator, and more.
      Course Overview
      • Discover WTI: A Global Benchmark
      • WTI Product Overview
      • Understanding Crude Oil in the United States
      • The Importance of Cushing, Oklahoma
      • Crude Oil Auction
      • WTI Houston Futures (HCL) Dock Allocation
      • Introduction to European Crude Oil
      • Brent Crude Product Overview
      • Learn about Crude Oil Across Asia Region
      • Understanding Commodity Storage
      • Crude Oil: Futures versus ETFs
      Introduction to Crude Oil
      You completed this course.Get Completion Certificate

      Crude Oil: Futures versus ETFs

      Video not supported!

      Crude Oil Futures versus ETFs

      There are many approaches investors can take when building their portfolios. Two of those choices are futures contracts and Exchange Traded Funds, or ETFs.

      Access Physical Markets

      One major reason traders use these products is to gain access to physical markets, like gold or oil.

      In the crude oil market, managed money customers usually do not own assets or engage in the underlying physical market to trade, store and deliver physical crude oil. Physical market participation requires significant infrastructure investment in oil production, storage tanks and pipeline distribution facilities. The same challenge applies to other physical markets as well.

      To gain direct crude oil market exposure, investors can trade WTI futures contracts, which are physically-delivered light sweet crude oil from the Cushing, Oklahoma hub. WTI futures is the international benchmark for crude oil prices, increasingly so with U.S. production growth and the lift on the crude oil export ban.

      Futures versus ETFs

      Some advantages of futures over ETFs include: 

      • No management fees
      • Roughly 24-hour trading access; when overnight market events, such as elections or weather, impact oil prices, there is no delay before you can trade - unlike waiting for ETF open.
      • Many oil or energy ETFs use futures to provide market exposure; whereas trading NYMEX WTI futures gives you direct access
      • When NYMEX WTI futures roll approaches, oil ETFs often lose some of their correlation to the underlying market, which can inflate your costs due to slippage. 

      Energy ETFs

      The two popular crude oil ETFs are the United States 12 Month Oil Fund (USL) and the United States Oil Fund (USO). Both ETFs are issued by the United States Commodity Fund, LLC but represent a different underlying futures exposure. 

      USO

      The USO is designed to track the price movements of the WTI futures spot month contract. If the front month contract is within two weeks of expiration, the positions on the front month contract will be rolled over to the second front contract.

      USO has different WTI exposure than the WTI front month futures contract because of its roll over schedule. Since the USO rolls over its front month contract two weeks before it expires, it is in fact exposing approximately half of its price exposure to the second front month contract price.

      Historically, the USO performance deviates slightly from the WTI front month contracts. Even though the USO tries its best to mimic the front month WTI price, performance also deviates from WTI spot prices due to roll yield, transaction costs and management fees. 

      USL

      The USL is designed to track price movements of the rolling average of NYMEX WTI futures 12-month forward contracts.

      The front month contract position is rolled over to the 12-month forward contracts, constantly maintaining an average price exposure of the rolling 12 consecutive months.

      Conclusion

      Investors need to be aware of the differences between futures and ETFs so they can decide what works best for them. 


      Test your knowledge

      Related Courses
      /content/cmegroup/en/education/courses/introduction-to-crude-oil/crude-oil-futures-vs-etfs
      • {{ course.name }}
      Previous Lesson
      Next Lesson
      Course Overview
      Get Completion Certificate
      Previous Lesson Next Lesson
      • YouTube
      • Twitter
      • Facebook
      • LinkedIn
      • Instagram
      • Rss

      CME Group is the world's leading and most diverse derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). 
      Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.

      © 2021 CME Group Inc. All rights reserved.

      Disclaimer  |  Privacy Policy  |  Cookie Policy  |  Terms of Use  |  Data Terms of Use  |  Modern Slavery Act Transparency Statement  |  Report a Security Concern