Yelling from the margin

10 May

Within the infernal torrent that is my twitter stream today there are 3 standout topics for most ignorantly referenced:  dissection of dealers 10-Q’s,  PIMCOs holdings, and commodity margin hikes. Last one is easiest and since I only have a few moments, lets deal with that.  If you have not read   Kiddynamite‘s post from last week on silver margin hikes you should probably do that first.

Ok, simple and quick. Margin on commodities futures are done by way of dynamic formulas that attempt to keep enough collateral on the books to cover daily price swings before positions are marked to market. (Note: they are not determined by The Bern-ank, JP Morgan, high frequency trading, or any other bad guys out to ruin your inconsequential ETF trade.) This in vital in ensuring all trades are covered and that they do not default to the exchange.  As such margin requirements are a function of the underlying commodity’s volatility. 

Now here are the volatility charts for oil and silver from the past two years. All measures of which are currently at their highs, so please stop fucking complaing about margin hikes.

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12 Responses to “Yelling from the margin”

  1. Kid Dynamite May 10, 2011 at 2:56 pm #

    the CME even explained it in simple language, which will indubitably be misinterpreted/ignored/groupthinked by the silver bugs:

    http://openmarkets.cmegroup.com/clearing/understanding-margin-changes/

    and while I agree completely with you, the silverbugs will also make the chicken and the egg argument – that it was the hikes that caused the volatility – not the volatility that caused the hikes.

    that anyone needs a “reason” for silver to have sold off after TRIPLING in 6 months is beyond me though… It was primed to correct, and it did.

    • Dutch_Book May 11, 2011 at 12:26 am #

      I don’t really care, silver and oil bugs be damned. I just want to get in the ground floor of the Kid Dynamite Ultra-Long Physical Bead Closed End Fund. As I mentioned yesterday it’s clearly the Magellan Fund of the 21st Century.

    • The Sleuth May 11, 2011 at 7:16 am #

      you must seriously be kidding yourself to believe this. open your eyes. in a span of 6 business days (many of them down days for the white metal) CME increased the margin 5 times (4 notices, 1 had two hikes in it). on the fringe a number of commodity brokers doubled the margin requirement. you think a computer program generates a margin increase and the CME just issues it? wow.

      unfortunately for the silver bears/paper shorts the physical silver did not get shaken out of the hands of many. when is the next computer generated margin increase coming? nothing to see here, please move along.

      • Kid Dynamite May 11, 2011 at 9:03 am #

        you should have answered your own question – why do you think Interactive Brokers increased their margin requirements? because they are part of a cabal to suppress the price of silver right? (/sarcasm)

        no, it’s to ensure that their clients don’t get in over their heads with margin losses that the brokerage will then have to eat. anyone who has ever traded ANYTHING should understand this.

  2. Thufor Hawat May 12, 2011 at 12:49 am #

    The ridiculous number of margin increases in so short a time dictates that the fix is in. Also, that movie, Weekend At Bin Laden’s, came out, and the whole universe was deluged with that quirky, mysterious stuff called news, and all the ‘news-bugs’ out there dumped all they could on silver at the same time. I still see no fundamental reason for silver to have moved any lower these past weeks. As far as the shorts go, aren’t most of those shorting of the corporate-investment type? Don’t they have buddies on Wall Street, and isn’t a margin call going to shake out the little guy before it shakes out the white-collar marketeer?

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