CME raising margin on Comex silver futures contracts

On Tuesday the Chicago Mercantile Exchange informed traders that it was raising the amount of margin—how much cash an investor has to put up front to cover trades—on Comex silver futures contracts. That prompted speculation that the CME would impose similar increases on gold.

The new requirements make it more expensive for speculators and investors to hold positions in these hot commodity markets.

After the close of trading on Wednesday, investors seeking to put on an initial position in the silver futures market will be required to post $8,775 per 5,000 ounce silver contract versus the previous $6,500. And investors with existing positions that are losing money will be asked to post $6,500 instead of $5000 for ongoing “maintenance” margins.

While the new margin requirements make it riskier for traders to make highly speculative bets, it could actually end up being bullish for the markets, says Kevin Grady, a trader for MF Global.

That's because traders with "long" positions—who bet prices will rise—aren't affected while "short" traders—who bet prices will fall—will get squeezed out because they have to put up more money to maintain their bets, he says.

Jim Steel, HSBC chief commodity analyst, says history shows that reaction to such margin adjustments are “sharp but short”. The last time margins were increased was after close of business June 7, 2010 when the price of silver was roughly 50% lower than it is today.