Margin required on gold/silver

[jim4silver]

I was reading some articles recently that stated one factor that is causing gold to outrun silver is that the margin requirements on the Comex differ between the two metals.

For instance, an initial margin for gold is 6075, silver is 21600. Margin is what a trader must put up in their account to trade a futures contract so that any losses are guaranteed to be covered immediately.

Some say, and it seems reasonable, that this big difference in margin requirements is favoring gold futures over silver for longs (those who are betting the price will go up). I don't know what the margin requirements are in other markets elsewhere in other countries, etc.

Will be interesting to see if they raise the margin requirements on the gold contracts, and if so, what impact it will have.

Jim

 

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[hombre_de_plata_flaco]

Interesting.............

 

[mts]

Good info!

 

[mr_larry]

You bring up a valid point. Also, note that "Day trading" requirements are generally half of those you listed.

There is talk about raising the requirements on gold, which in my opinion are much too low. Putting up a little more than $6000 to control $175,000 asset is not enough. To think that you can day trade 100 ounces of gold for $3,000 when the position has exceeded $3000 moves intraday every day this week is a bit alarming.

1 gold contract equals 100 ounces of gold. 100 @ $1750/oz = $175,000
1 silver contract equals 5000 ounces of silver. 5000 @ $39 = $195,000

 

[Silver Surfer]

I think margins are simply another "racket" that keeps people like us out of serious trading, and give unfair advantage in the markets to those "on the inside".... You think any of us could place an order without having to pay it all, or at least have the whole amount of the purchase in our bank account?
If I could order like they can, or bet on the market the way they do, I could rake in a fortune... Heck, if I would have had the credit the traders get, I could have made a huge amount when the market tanked, then came back in the next two days... But I just had to sit and watch as others did, and are going to do again after todays crash...
The more I learn, the more I despise Wall Street and the politicans that passed the laws that allow certain groups priviledge that most of us will never get...
Sorry for the rant..

 

[jim4silver]

You bring up a valid point. Also, note that "Day trading" requirements are generally half of those you listed.

The amounts I listed are for the initial margin, maintenance margins are a bit less. I don't know exactly what you mean by "day trading" as far as the CME goes. Is there a way to trade contracts and pay a lower margin besides doing mini contracts? I have never traded the futures themselves so I don't know.

I think margins are simply another "racket" that keeps people like us out of serious trading, and give unfair advantage in the markets to those "on the inside"....

Actually Silver Surfer, they have to require some amount of margin because a futures contract is settled at the end of each day. If the market moves in your favor, money is placed into your account, if your position lost, money is removed. It is not like a stock or option that you gain or lose only when you sell. Futures are "settled" each day so the money has to be there. If there were no margin requirements there would be no way to guarantee you would be paid if you are on the winning side of the trade. You can picture a futures contract like a tug of war. On one side is a long (the buyer betting it goes up) and on the other side is a short (the seller betting it goes lower), so it is a complete zero sum game.

Now whether the amount of the margin required is fair or not is another story, and is out of my league or experience to comment on. The amount is supposed to be higher in times of great volatility and less in lower volatility.

Jim

 

[mr_larry]

http://www.cnbc.com/id/44097598

The CME Group on Wednesday raised maintenance margins for trading Comex 100 Gold Futures by 22.2 percent, effective after the close of business on Thursday.

The exchange operator, parent of the Chicago Board of Trade, raised margins on gold futures for speculators to $5,500 per contract from $4,500 a contract.

 

[jim4silver]

http://www.cnbc.com/id/44097598

The CME Group on Wednesday raised maintenance margins for trading Comex 100 Gold Futures by 22.2 percent, effective after the close of business on Thursday.

The exchange operator, parent of the Chicago Board of Trade, raised margins on gold futures for speculators to $5,500 per contract from $4,500 a contract.

Good article Mr. Larry. $4500 was the maintenance margin requirement previously. After seeing your post I looked around online and saw the initial margin is being raised to $7425. When silver was rising a few months ago it seemed like the margins were being raised quite a bit. We'll see if they do that to gold as well.

Jim

 

[mr_larry]

http://www.cnbc.com/id/44097598

The CME Group on Wednesday raised maintenance margins for trading Comex 100 Gold Futures by 22.2 percent, effective after the close of business on Thursday.

The exchange operator, parent of the Chicago Board of Trade, raised margins on gold futures for speculators to $5,500 per contract from $4,500 a contract.

Good article Mr. Larry. $4500 was the maintenance margin requirement previously. I wonder if they will raise the initial margin requirement as well?

Jim

One would think so. Your comments a few posts above are a little misleading. Although futures contracts technically "settle" after the close of business every day, there is an expiration date, similar to the options market, where the real settlement occurs. Most contracts are closed prior to the expiration date, but any open contracts settle for either cash or physical delivery at that time.

"Day Trading" is simply where an investor, speculator or trader holds no open positions over night, closing all trades in the same session when they are initiated.

And for the record, I worked in the margin department of a major brokerage house and I also managed an options trading desk for many years. My knowledge of futures is much more limited. The thing about margin requirements for naked options is that they are based as a percentage of the underlying security, not a fixed price. I don't know the reasoning why the CME does not impose a percentage requirement versus a flat rate per contract. It seems counter-intuitive to me but they must have some rationale for their requirements.

 

[mr_larry]

Here is a new article saying that the increase in margin requirements will not affect the price of gold.
http://www.cnbc.com/id/44099134