To better understand how the spot price of silver gets 'discovered,' you need to understand some of the critical inputs in one of the most significant dictators of silver bullion prices, the CME Group's COMEX in New York.
Here we cover what silver margin requirements are. What are they for, and why do they change over time?
What was the highest Comex silver margin requirement ever recorded?
How might have increaser sharply SI margin requirements caused the silver spot price to collapse in April 2011?
Silver futures ticker, Silver futures symbol - SI
Silver futures contract size - 5,000 oz*
[*in derivative silver, rarely ever gets delivered on in physical bullion, almost all settled in fiat USD]
Silver futures twitter symbol - #SI_F
In the silver futures market, participants can leverage their derivative silver positions using futures contracts. In the futures exchange, investors and entities do not have to post the total value of the silver futures contract as collateral in their accounts.
Instead, a silver margin requirement is required, which is only a small part of the value of the contract. Here we examine the silver margin requirement history from 2005 to 2019 for silver futures (SI) contracts on the COMEX.
For example, a non-member silver futures trader on the COMEX has to currently put up $4,510 fiat US dollars to control an SI contract representing 5,000 derivative silver ounces, or $90,000 worth of silver bullion value.
In other words, almost 20X leverage is possible at the moment for COMEX silver futures non-member traders.
Silver Margin Requirements 2005-2019 CME Group COMEX
Often if one reads or listens upon short term spot silver price action. You will come across forecasters and silver price predictors who may mention any recent news of the COMEX either raising or lowering silver margin requirements.
Typically and often argued, is the idea that each time the COMEX raises silver margins, it is bearish for silver prices for most of the leveraged longs are speculative investors (betting the price for silver will rise). Meanwhile, the often alleged naked silver shorts or commercial bank derivative desks with deeper pockets can flush out the long betters and get the silver futures price to fall on the COMEX as a typical result.
The CME Group runs the COMEX. And they essentially define silver margins as the following.
Silver Margin Requirements - (n) fiat US dollar deposits held at CME Clearing to ensure that clearing members can meet their obligations to their customers and to CME Clearing.
In silver futures (SI) trading, two different kinds of margin requirement levels get made for two different types of market participants.
Initial margin requirements are the up-front payment — a percentage of the trade price, made before a market transaction when purchasing on that margin.
After the initial margin gets met, a market participant is required to keep up the maintenance margin — the amount of equity necessary to retain an open position.
Speculative ("Spec") or non-member initial margin requirements for all products get set at 110% of the maintenance margin requirement for a given product.
Hedger or member initial margin requirements for all products get set at 100% of the maintenance margin requirement for a given product.
The idea that some entity is a hedger makes little to no sense at all, as no one knows anyone else's books in real-time so to claim an entity a hedger is a misnomer.
The record high in silver margin requirements for spec non-member silver futures traders was in late 2011 when the non-member went up to $25,000 per 5,000 oz SI contract. Reaching almost 20% or only around 5X leverage once the silver spot price plunged in late 2011.
Silver Margin Requirements in Perspective ( moment 9:38 is key )
For more on how the silver price is discovered currently today mostly via derivative trading on exchanges such as the COMEX.