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.