I can understand it when they raise a margin when prices are rising dramatically but why when the price is already falling?
Raising the margin is supposed to reduce volatility by preventing extreme leveraging. The price direction does not matter.
IMHO major players knew a margin hike was coming silver was shorted and sold off in mass before the hikes came into place, amd when they came into place that intensified the drop
S A That sounds like a reasonable argument but it still doesn't account for the margin hike in the first place. If a margin hike is to stop volatility in both directions then surely if the market looks like it is heading down why increase the margin - that exacerabates the fall causing too much sell off. I think perhaps they got it wrong - thought that there was going to be a big buy up of silver and gold so increased the margins in anticipation of it but the opposite happened and their margin hike just made the fall even bigger. I looked up history of margins on COMEX and found a pdf showing 2009 to present. Not sure if I got the right one but some of the figures are - For a spec tier 1 initial deposit maintenance 17/12/2010 10,462 - 50 7750 .00 29/4/2011 14514 .50 10750.00 5/5/2011 18900.00 14000.00 26/9/2011 24975.00 18500.00 So if I am quoting the right figures that is more than doubling of the bond requirements in less than a year with no reduction? So how many more hikes can they have with these margin requirements?
If the market is volatile, the wild swings can cause people to go bust very quickly. If lots of people go bust, there is a danger that someone won't be able to stump up the cash they owe (counter-party risk). The COMEX don't want to see people default because then everyone will stay out of the market, volumes decrease and they don't make any money. The solution is to raise margins so that people have to gamble with more of their own money and less borrowed money. It has very little to do with reducing volatility and rather a lot to do with ensuring winners get paid on time.
To add to that Big A.D., assuming that everything is above board. Goldpanner may have missed the point. It is likely that G&S were falling due to the over bearing number of shorts in the market, increasing volatility. The shorts are just as exposed to the margin as the longs. By raising margins it should have in effect, flooded out a lot of the weaker shorts along with the weaker longs and hence stabilizing prices..... What we saw actually happen contradicts the theory of less leverage equalling more stable prices. It is a joke really. I hope one day we see a system where the only people able to buy a futures contract are those that have a legitimate use for the material or those willing to stand for delivery.
It doesn't kill the theory, just proves that the traders thrive on volatility. How many people would have stumped up extra cash to take out a short position, knowing that the weak longs would have to sell up? And how many people here held off buying that weekend to see if prices dropped further on Monday? I'll bet there would have been a few people remembering the "May Massacre" when the COMEX last raised margins. The market stabilises eventually as leverage is removed from the equation but any event that triggers a change in the status quo is going to be magnified by the leverage that still exists. If you're only putting down $10 for every $100 you're gambling, at worst the market swings 10% against you, you get a margin call and you lose your ten bucks. Best case scenario is the market goes 10% your way and you make a 1000% return. With that kind of win at stake, why would you not maintain a short position if the longs are going to get squeezed? Yeah, it still would have shaken out some of the weaker shorts but the strong shorts would have been increasing their position as much as possible and the longs would have sold and gone short instead too - they don't care which way the market is going so long as its going there hard and fast. So you sell 20 long contracts and only take out 16 shorts. Doesn't matter that much if the market crashes by 20% in a week. It makes perfect sense from a psychological point of view: higher margins = less speculation = less volatility = less opportunities to profit = people will exit the market = prices will go down = I'm going to short the hell out of this. Not going to happen while Goldman Sachs rules the world
Before the April down spiral calls were being made by European brokers to large clients to dump Silver.Totally agree with you 250% I am staggered that even for the positive reasons that increasing margin calls brings,that they are allowed to happen so quicklythats the part that doesn't play right. REDBACK
I don't mind it it makes for good buying opportunities and I doubt they can carry on like that forever. Its a little stressful though especially if you haven been stacking for long.
True. The hidden hand is certainly hard at work at the moment. Euro collapse imminent. US dollar rising. It's all looking like a giant currency play that a strong gold price would upset. http://www.telegraph.co.uk/finance/...ns-as-leaders-push-world-into-Depression.html Protectionism beckons as leaders push world into Depression The world savings rate has surpassed its modern-era high of 24pc. This is the killer in the global system. It is why we are at imminent risk of tipping into a second, deeper leg of intractable depression. p.s. "Senator Chuck Schumer" !! You can't make this up.
Big A.D. I totally agree and the theory seems sound. The problem is as we know, the strong handed shorts are backed by big dollars (JP Morgan etc). They must lick their lips every time margins get increased. I should have been more clear when I said about contradicting the theory..... After the margin increases, accelerated the drop. From the 26-32 region all you could see was massive up and down swings in the chart price almost by the minute. Sure that is shorts taking profit when it bounces back up but hardly could be considered less volatile. There should in theory be a whole lot less shorts in the market now, the shorts have taken profit after the plunge. I guess as silver starts climbing back toward 40 again the shorts will start to stack up again and CME will gladly accommodate them with another Margin increase. If this isn't a racket I don't know what is.
Sorry but I really don't think these margin hikes are done to reduce volatility. The market thrives on volatility, the one thing they don't want is a stable commodity price as no-one makes any profit. Yes they do shake a lot of the weaker traders out of the market but doing it to stabilise the price - I don't see it, to deliberately lower the price, I can see it. I reckon the margin hike is a great tool for dropping the price of a commodity whenever they want and at the moment they want a weaker gold and silver price as it leads to a higher US dollar price. Whats a bet that they are going to make more margin hikes whenever the gold/silver price gets back up to the recent highs ie gold 1900, silver high 40s. I also think that big players are making a lot of money out of advance knowledge of margin hikes. We have seen the market make sudden moves before major announcements. The whole future commodity trading is a joke, it does not represent the true state of the commodity, and all this shorting , gambling on lower prices, will ultimately destroy the whole financial system. Just read your post Lovey - posted same time as I was writing this - similar views!
