Exchange margin requirement manipulation

K

kxvid

As if there aren't enough risks trading futures, a seldom discussed one is a change in margin requirements. Such moves can precipitate massive sell-offs, as it did in sugar causing the largest drop in 22 years. No amount of fundamental or technical analysis can do anything to predict these moves either.

Sugar fell by a MASSIVE 11% on Nov 12 after the ICE hiked margins by a massive 65%.
Now the CME is hiking margins on silver, twice in the past 2 weeks. First from $5,000 to $6,500, then $6,500 to $7,250. These moves have also caused a selloff.

What's to say that the exchanges aren't taking sides and trying to bail out their friends with large short positions? Why should the small time speculator have faith in these markets or even participate in the game anymore? The big money can afford to hold their positions despite these margin increases, such moves only flush out small speculators who are by and large long commodities.

http://www.examiner.com/finance-exa...hange-cme-raises-margins-on-commodities-again
http://www.bloomberg.com/news/2010-...-on-exports-from-europe-surplus-in-india.html
 
Silver and gold to 0. Nothing puts a bigger smile on my face and a chubby in my pants than to see silver and gold futures deep in the red. I knew this time would come. All the die hard precious metal "investors" starting to feel some pain and the first thing they do is cry about manipulation. Haha! I've never met a crazier bunch of loonies. The sad part is the fact that everyone one of them is on some die hard conspiracy kool aid in the first place and so when shit hits the fan...the "conspiracy snowball" just keeps rolling. Manipulation huh? Well how about managing risk like they did when they deleveraged FX. Get a clue loser.
 
Quote from kxvid:

What's to say that the exchanges aren't taking sides and trying to bail out their friends with large short positions? Why should the small time speculator have faith in these markets or even participate in the game anymore? The big money can afford to hold their positions despite these margin increases, such moves only flush out small speculators who are by and large long commodities.
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Hmmm... margin increases are for both longs and shorts... any increase in margin requirements is more painful for those who are in the red (in this case the shorts).

If this were a squeeze, it should have gone parabolic up (as when oil was over 100 and they kept raising margins), not down.

Looks more like massive profit taking.
 
As if there aren't enough risks trading futures, a seldom discussed one is a change in margin requirements. No amount of fundamental or technical analysis can do anything to predict these moves either.

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I really understand your point and it is exasperating. Although your comments refer to futures, I have found the same with stocks under $5. There is no way to factor this in. In equities, the margin requirements would change several times a day. I suppose those with more experience or involved in the street already knew this, I had to find out the hard way.
 
Quote from nutmeg:

As if there aren't enough risks trading futures, a seldom discussed one is a change in margin requirements. No amount of fundamental or technical analysis can do anything to predict these moves either.

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I really understand your point and it is exasperating. Although your comments refer to futures, I have found the same with stocks under $5. There is no way to factor this in. In equities, the margin requirements would change several times a day. I suppose those with more experience or involved in the street already knew this, I had to find out the hard way.
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Thanks for posting. I can't imagine having the margin changed a couple times a day on me! The thing about margin hikes is that they DECREASE risk for the exchange/broker/clearinghouse, while INCREASING risk to the trader. I also can't imagine how the risk changes meaningfully enough thoughout the day to justify changing the margin multiple times. Perhaps a trade processing expert could share some insight on this.

Its one thing to lose money because the market goes against you, its quite another to lose because the rules of the game change on you.
 
Quote from Picaso:

Hmmm... margin increases are for both longs and shorts... any increase in margin requirements is more painful for those who are in the red (in this case the shorts).

If this were a squeeze, it should have gone parabolic up (as when oil was over 100 and they kept raising margins), not down.

Looks more like massive profit taking.
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That's what I'm thinking too. Increased margins affect longs and shorts equally.

Also, they don't just change the margins without rhyme or reason. When a market is volatile, you should know that the exchange is going to consider increasing the margin and be prepared.
 
Quote from kxvid:

Thanks for posting. I can't imagine having the margin changed a couple times a day on me! The thing about margin hikes is that they DECREASE risk for the exchange/broker/clearinghouse, while INCREASING risk to the trader. I also can't imagine how the risk changes meaningfully enough thoughout the day to justify changing the margin multiple times. Perhaps a trade processing expert could share some insight on this.

Its one thing to lose money because the market goes against you, its quite another to lose because the rules of the game change on you.
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How does changing margin increase risk for the trader?? The trader is in charge of risk.
 
Exchanges raise margins in response to either increased VOLATILITY or increased CONTRACT VALUE.

I think it's obvious to anyone with a functioning brain that CME Group raised margin on metals because it protects the exchange.

$2.00 high-to-low swings in silver is, after all, a $10,000 change in the underlying.

Manipulation takes OTHER FORMS. Definitely not this.


EDIT: The only people who worry about such changes are traders who trade too much leverage for their small accounts. Yeah, if you're getting $500 day trading margins, yes it really matters. For the serious speculator, it matters not. I think CME is doing a good job.
 
Quote from olias:

That's what I'm thinking too. Increased margins affect longs and shorts equally.
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While this is true from a technical view, it misses an important distinction at least for commodities futures: margin increases affect speculators much more than actual producers and suppliers of the commodity. Since they have either cash in full or the commodity itself available to close the trade, they don't care so much what the margin requirement is and they have much lower requirements.

So in a precious metals bubble scenario where you have miners selling future production and speculators buying it, the speculators are affected much more than the miners by an increased margin requirement. Especially since at the end of the bubble the speculators are maximally leveraged.
 
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