Silver and Margin Requirements Redux
Wary silver investors may be wise to watch out for a pre-election margin hike. Especially if
silver’s price gets too frothy or starts dragging the price of gold up along with it, since such
events could signal the reemergence of unpopular inflationary pressures.
The Chicago Mercantile Exchange or CME is a self-regulated, for profit organization that sets its
own margin requirements. The CME’s maintenance margins for silver futures contracts are still
at relatively levels compared with other markets, despite the precious metal’s recent
consolidative trading patterns seen prior to the Fed’s announcement of its latest QEIII package.
Lower margin requirements used to attract greater speculative trading activity since it is
cheaper to establish a given futures position in terms of the capital required to be placed on
deposit as margin.
Due to its per-contract commission structure, the CME profits more from increased trade
volume. This explains why it promotes HFT or algorithmic trading as a means for providing
liquidity, while at the same time blithely ignoring the heightened market risk of such automated
trading methods, as well as their tendency to induce a faulty price discovery mechanism.
Higher Margins Intended to Quell Volatility?
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