Posted on 05/10/2011 5:20:31 AM PDT by Free Vulcan
LONDON (MarketWatch) — Crude-oil futures declined in electronic trading on Tuesday as a hike to margin requirements dampened sentiment toward the commodity.
Crude for June delivery dropped 94 cents to $101.61 a barrel in electronic trading on the New York Mercantile Exchange.
The losses came after CME Group said it will raise margin requirements for a wide variety of crude-oil contracts.
LONDON (MarketWatch) — Crude-oil futures declined in electronic trading on Tuesday as a hike to margin requirements dampened sentiment toward the commodity.
Crude for June delivery dropped 94 cents to $101.61 a barrel in electronic trading on the New York Mercantile Exchange.
The losses came after CME Group said it will raise margin requirements for a wide variety of crude-oil contracts.
(Excerpt) Read more at marketwatch.com ...
At least someone is trying to do something about higher gas prices. Resident Obama sure isn't.
The new margin requirements are what caused the huge drop in silver.
I have no real understanding of all this, but I gather from what I’ve read raising the margin is a bit like upping the ante and/or the minimum bet in a poker game. Am I close?
Mergin requirements have only a temporary effect. Look for higher prices all around
The market is built entirely upon crony capitalism, try cash and delivery, then resale. The make belove business people are exempt from the law, try selling someone a house you do not own.
Bettors must “settle” the difference between the daily close and what they bet at the end of every day.
Pigs get fat.
Hogs get slaughtered.
Amount of actual money involved, the rest is credit.
Margin requirement is a figure set by the exchange and represents the amount of capital each type of trader (there are 3 types, btw) must deposit with an exchange member in order to 1) buy or sell a futures or futures option position and 2) keep that position overnight (or over several nights...).
At the end of the day session (typically, but not always 4:00pm Central time), the equity in a trader's account is computed. Almost invariably, the equity figure will have changed during the day as prices bounce around. This is the procedure known as "mark-to-market". Then the account's margin requirement is computed. If the equity in the account is below the margin requirement, the trader's brokerage firm may issue a "margin call", a demand for more the trader to deposit more equity or remove one or more of his trading positions.
When the exchange raises margin requirements (which are typically 8-15% of the value of a futures contract; the calculation for futures options is more complex), some number of people trading the market whose margin requirement was raised simply will not have enough equity in the account and will receive a margin call.
Usually, traders so affected will simply liquidate (some or all of) their positions in the market whose margin requirement was raised. When speculative interest is very high in a market, as is the case in crude just now, this liquidation will drive down prices for a time.
Hope that's of some use to you, and FReegards!
Something like that. Most commodity contracts have a large total value. Silver for instance, is a 5,000 oz contract, about 17K worth of silver right now. You don’t have to put that much down to trade it though, generally just a small percentage of that. However, that small amount is called leverage, and it what makes commodities so risky, because if it moves against you it won’t take much to wipe that little bit you put down away.
Yes, very helpful. I see the similarities in that after all is said and done we’re talking about the cost of being in the game.
Isn’t it amazing how time complicates things?
After careful consideration I think I’ll just stick with my usual game of poker at a neighbor’s on Sat. night.
Thanks a million!
re: won’t take much to wipe that little bit you put down away
Is that all you have at risk? I mean, do they come looking to you for the entire difference between what you leveraged and what it ended up being worth?
Sorry to be so dense, just never took the time to figure it all out.
Thanks!
This is a smart move by the exchanges. It will deflate the “it’s the speculators” meme and shine a bright, glaring light on Obama’s energy policy and the falling dollar.
;^)
It also shows that $4 a gallon gas kills the economy to the point where people have no choice but to cut back their driving to the bare minimum and cut back on other discretionary purchases. The only reason oil is falling is because of falling demand.
BTW, that was 170K, not 17K.
No, not unless you take delivery. The margin money only covers the movement of the contract up or down. Every penny that silver moves is I believe $50. If you have say 5K margin, silver could move against you a dollar before your money is wiped out. If you look at the charts, silver can move that much easily in a few hours. Hence the risk.
However, if you get close to being wiped out, you will get a margin call. If you don’t pony up more money, they liquidate your position. I know this because I used to be a margin manager, and had to do that many times.
Yeah, freaking typo. Damn laptop, I hate their keyboards.
I wouldn't trade silver just now with YOUR capital, let alone mine.
And yes, a 1-cent move in silver is equal to $50.
Tom Kivisto of Tulsa learned the hard way. He took down high fast rising energy enterprize to the tune of $3 billion in margin calls.
Can anybody say "Marcellus"? (snark, snark...)
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