Exchange operator CME Group Inc. (CME) cut the amount of collateral required to trade gold futures in a move that may invite greater speculation in gold. As of close of business Monday, speculators in the benchmark gold contract must put up an initial margin of $6,075 per contract, down from $6,751. To keep the contract overnight, these traders must maintain $4,500 of the initial margin, down from $5,001.In truth, the exchange raises margin requirements to guard against losses, because it has to make up the difference when speculators can't cover their losses and go bust. Margin requirements go up (and down) for the same reason that home purchase down payments go up (and down) when home prices go up (and down). Durden's profound dishonesty is one of the reasons his website is pretty worthless as a source of investment information.CME also lowered the initial and maintenance margin requirements for hedgers and exchange members, to $4,500 from $5,001 previously.
When price movement becomes less volatile, margins typically go down because the risk of the position also decreases. This is the case with the decrease in gold margin requirements yesterday, CME said. The lower margins therefore, are a boon for gold speculators, who can buy or sell more contracts with less cash starting next week.
Well said. Thanks.
bttt
In truth, the exchange raises margin requirements to guard against losses, because it has to make up the difference when speculators can't cover their losses and go bust./bingo
I can understand why businesses might want to buy or sell futures to ensure a certain price - Kellogs might want to be able to lock in the corn price for example. An airline might want to lock in fuel prices for a couple years, etc.
But a lot of money looking for a return, large investment firms and hedge funds can move the price of commodities in a big way, up or down, without any actual interest or use of the product in question. Not persuaded that is necessarily a good thing.
And as far as housing goes, it seems obvious now that it was a bad thing. “Easy money” - low interest loans, (Zirp), coupled with no lending oversight plus insane leverage created a huge real estate bubble, and destroyed the investment banking balance sheet, and has called into question the basis of private property ownership (MERS) since the prommissory note and deed have been separated, etc. It just goes on and on... The fraud and corruption is almost beyond description. And if that isn’t bad enough, it’s all been transferred to the public balance sheet.
So you’re saying that downpayment req’s are going up based upon whether real estate values are going up? Not that long ago, downpayments were essentially zero, while RE prices were going up. Now, they are apparently going up, while RE is going down.
Hm.