Tuesday, April 26, 2011

CME Increases Silver Margin Requirements

Around a month ago I pointed out that the CME margin hikes in the Silver market (and other leveraged markets) are far from a conspiracy. 

The CME have announced they are set to increase their margins again after close on Tuesday trade in the US which once again has the Silver market conspiracist frothing at the mouth claiming that it's all part of a larger plan to hold the price of Silver down. Now don't get me wrong, I do think the large players in these markets use their size to their favour to push the price around on a short term basis, infact I implied as much in a post a couple of days ago:
Firstly let's consider that we have options expiry on Tuesday, this is often a time of short term price weakness. If we see price weakness in the week ahead then the attempt at taking out a new all time high might not come for a week or two. 
I just don't think pushing around the price short term to the larger traders benefit also implicitly implies a longer term manipulation scheme to control the price.

Changes to the initial margin requirement for spec traders over the past 6 months look like this (with the latest change in bold):

Date: November 10th, 2010
Spot Price: $27.18
Contract Value: $135,900 (5000 x $27.18)
Margin Requirement: $8,775
(6.5% of full contract value)
Resulting Leverage: 15:1

Date: November 16th, 2010
Spot Price: $25.40
Contract Value: $127,000
(5000 x $25.40)
Margin Requirement: $9,788 (7.7% of full contract value)
Resulting Leverage: 13:1

Date: December 17th, 2010
Spot Price: $29.15
Contract Value: $145,750
(5000 x $29.15)
Margin Requirement: $10,463 (7.2% of full contract value)
Resulting Leverage: 14:1

Date: January 21st, 2011
Spot Price: $27.45
Contract Value: $137,250
(5000 x $27.45)
Margin Requirement: $11,138 (8.1% of full contract value)
Resulting Leverage: 12:1

Date: March 24th, 2011
Spot Price: $37.26
Contract Value: $186,300
(5000 x $37.26)
Margin Requirement: $11,745 (6.3% of full contract value)
Resulting Leverage: 16:1

Date: April 26th, 2011
Spot Price: $45.50*
Contract Value: $227,500
(5000 x $45.50)
Margin Requirement: $12,825 (5.6% of full contract value)
Resulting Leverage: 17:1
*Have just used current spot price as don't yet have Tuesday close price

As you can see the net result of the change is very much inline with previous increases. If anything the increase in margin requirement could have been more aggressive!

My opinion hasn't changed from a couple of days ago. I still think we may see $50 surpassed in this rally which will result in a quick squeeze to $55-$60 or higher before this current spike is over.

That said I'm not a short term trader and it doesn't both me whether the short term top is already in or yet to come.

BB.

Disclosure: Positions held in Silver. Not investment advice. Do your own research.

4 comments:

  1. At what point would you say this would become a conspiracy?

    There have now been 5 margin hikes in 8 days. "As of May 9th, the initial margin is $21,600, or 11% of the contract value, while the maintenance is $16,000".

    http://www.zerohedge.com/article/cme-margin-hike-4th-and-5th-charting-parabolic-rise-cme-silver-margin-hikes

    The last few have been during the largest downturn in a long while.

    ReplyDelete
  2. Anon, Thanks for the interest, I'm working on an update to my outlook on these increases which I'll put in a new post in the next day or so. Cheers, BB

    ReplyDelete
  3. I'll be interested to see your update.
    I agreed with your initial analysis, but events today seem to require another look at it.

    ReplyDelete
  4. Update as of 5th May, 2011
    http://www.bullionbaron.com/2011/05/cme-gets-aggressive-with-silver-margins.html

    ReplyDelete