EDITOR NOTE: If you’ve never traded futures before, you’re probably unfamiliar with the idea of hiked margin requirements. When the CME raises its margin requirements, it means that volatility is about to shake things up in a pretty serious way. The CME just raised margins on gold and silver contracts. Futures traders, particularly those smaller speculators aiming to “short” the market, beware! Some may be forced to deliver metals they don’t own, let alone afford. Sound money investors who own the physical metals need not worry.
Increasing volatility means investors could experience larger fluctuations in the size of their accounts, and higher margin requirements help the exchange's clearinghouse ensure trade obligations are met.
Meanwhile, silver speculators must pay an initial margin requirement of $14,575 and a maintenance margin of $13,250. Hedgers and members must pay initial and maintenance margins of $13,250.Gold speculators must pay an initial margin requirement of $10,230 to open a position in a contract and $9,300 to retain that position, up from $9,570 and $8,700, respectively. Hedgers and members are required to meet initial margin and maintenance margin requirements of $9,300, up from $8,700.
Margin requirements are larger for silver than for gold because of the notoriously volatile nature of its price due to lower liquidity and its supply and demand dynamics.
Front-month Comex gold futures plunged $91.80, or 4.91%, to $1,932.60 an ounce on Tuesday, while front-month Comex silver futures sank $3.212, or 11%, to $26.037 an ounce. Both drops were the largest on a percentage basis since mid-March.
Originally posted on Fox Business