High Margin Requirements Are Killing The Silver Market

EconMatters's picture

By EconMatters

The CME raising margins for Silver Futures to such a degree that relative to market price, futures multiplier, and physical demand by consumers is just too high has basically killed the silver market.  Throw in the fact that many brokerages have even higher margins than the exchange margins, and outside of a fed announcement, the silver market has all but dried up, when compared to the much more active physical market for silver.




The Silver contract which closed Friday at $31.93 an ounce has an initial margin of $16,940 with an overnight margin of $11,000 at a typical brokerage.


Now I know this market went through a very volatile trading phase, and with all the turmoil regarding Europe and central bank decisions around the world, it was probably a good idea to raise margins beyond normal percent driven formulaic metrics, until things settled down given the number and magnitude of the trading losses experienced at many brokerages.


As in, when brokerages institute higher margins than exchanges this tells you how many accounts were blown out with the crazy gyrations in the silver market when it was having 20% swings in a week.





I know margins have come down from the $21,000 to $26,000 level as the precious metals markets have settled into the new monetary landscape, but silver margins are still too high relative to the volatility and price in the contract.


How do I know this? The reason is that the silver futures market is not reflective of the actual demand in the physical silver market where at times the silver physical market is priced higher than the futures market.


Furthermore, consumers just cannot get enough of those American Eagle silver coins. I reference the fact that the mint has sold out of silver coins again.



In addition, with Platinum surging, at a higher price than Gold for a brief period this week due to mining concerns and stronger economic data of which is important due to the industrial use for the metal.


Well, silver plays the happy medium ground in being a store of value more than Platinum, but more of an industrial metal than Gold.


I believe the Silver market is mispriced relative to the price of Gold, Platinum, and the market dynamics in the physical space regarding Silver demand by the consumer.


Therefore, what is a fair price for Silver? What price do you think it should be trading at if margins were the right amount? First of all, I think the correct margins for the silver futures contract should be $9000 per contract with the overnight maintenance amount of $7200.


And given this margin level, and a healthier participation level, I envision silver trading around $42 to $45 dollars an ounce.  Moreover, the brokerages need to have the same margin levels as the exchanges.


There are other ways to manage risk for the clients and the brokerages through comprehensive liquidation procedures and account monitoring.


As it is always bad when electronic markets are so constrained that they don`t adequately reflect the demand in the physical market. 


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blindman's picture

i hope the margins destroy the futures market
one way or the other. in principle they should
be so high that no one can participate, turn over that
table he said !

Quinvarius's picture

The paper market is for producer hedging.  What you are seeing, in low paper prices, is VERY expensive hedges for producers and dealers.  They are being asked to hedge and lock in losses.  What happens next, and why Wall Street is doing this, is up for consideration.

Room 101's picture

So why should those of us who don't gamble give a shit if the casino is making it harder to put down a marker? 

Xibalba's picture

if you don't hold it, you don't own it.  Timmy and the Treasury can only rig this thing until they can't. 

Motorhead's picture

Silver, bitchez!

MFLTucson's picture

They fucked the goose because now physical will trade on value not manipulated fraud!

LongSilverJohn's picture

Since I ain't real smart, I'd just rather use 100% cash to buy Silver Eagles for the long slog, than promote a casino with boom-and-bust propensities....

I see this as a temporary buying opportunity, subsidized by the gamblers.

RECISION's picture

"High Margin Requirements Are Killing The Silver Market"

Really?  Pay in cash up front, take delivery of physical... How is margins killing the market...?

Ohhh... you mean it is killing the the Casino "market".

Ohh yeah, riiiiight.

Hmmmm... I'm sorry, were we supposed to give a shit?

MeelionDollerBogus's picture

Who the FUCK cares about margins on silver?

#1 buy bullion, paid in full, delivered & promptly taken to a convenient boating accident

#2 buy GLD options which move linearly better than SLV options yet GLD and SLV move together just as gold & silver spot do, easily seen on a scatterplot like this 2011 dec 27 gold 07 | 10 years gold vs silver scatterplot or this 2011 dec 27 gold 08 | scatterplot gold vs silver zoomed in

#3 scared of getting your cash-priced position hurt in your first few days of trading silver or actually owning it? If it's your first time at fight club YOU HAVE to fight.

etresoi's picture

Simply put, high margins protect idiots from themselves. 

disabledvet's picture

you could argue this is bullish. would be interesting to see if they did the same to the S&P 500 cash futures market what would happen of course...

sessinpo's picture

Backwards thinking.

Commodities are speculative markets. If demand is so high, then margins should be high. This is a market of leverage. You are controlling over $150,000 in silver with $27k That is no different then 20% down on real estate.


Furthermore, I have already cited and provided links directly to the US mint that shows that 2013 silver coins available Jan 24, and they are currently taking orders.


Room 101's picture

Taking orders that most probably will be filled. Until that window closes.

This is looking a lot like the market for ammunition about 6 months ago. So what happens when they run out again as they can't keep up with demand? 

Pool Shark's picture



"So what happens when they run out again as they can't keep up with demand?"

1) The US Mint will ration ASE's just like they did in 2008.

2) You will have to wait to get the next batch of 2013 ASE's

3) You might have to pay more for them.

4) You might consider buying the US Mint's 5-ounce Atb bullion coins (for lower premiums) instead: http://www.providentmetals.com/bullion/silver/us-slv/america-the-beautiful-5-oz.html

Any other questions?

 [PS: The US Mint is not going to run out of silver. In fact they just discounted their remaining 2011 silver bullion:


[PPS: There is still plenty of pre-2013 silver bullion available. If you want the lowest price, check here:  http://comparesilverprices.com/]


TrulyStupid's picture

The US mint buys silver and gold blanks from Australia... the coins are not minted from domestic PM stocks. The purchases are planned and made in advance so if demand is stonger than anticipated... they run out and need to wait fro the next delivery of blanks.

agent default's picture

You control fuck all.  All you have is a promise for delivery, which can be settled  in cash.  If you think you control anything tangible in this scenario I have some seaside property in Tennessee you might be interested in.

e_goldstein's picture

Fuck it, let the silver market die. If it no longer serves as a mechanism for price discovery then it's only purpose is to make everyone on the long side JPMs bitch.

disabledvet's picture

which clearly you don't want that either since it shows these economists and Government people have no confidence in their ability to pay the GOVERNMENT bills. "Precious metals is how Government pays THEIR way" i agree. And obviously there is no shortage of silver to trade...is there CME? Unless of course someone...MF Global'ed the...and then...

hairball48's picture

Yes physical. Let's get physical. I like to be able to touch and fondle my silver late at night while posting on ZH


Dr. Sandi's picture

I want more physical.

I'm stackin' physical.

Arrgh! Let me hear yer booty talk,

Yer booty talk.

xtop23's picture

Bring on the 100% margin requirements. IMO that'd be a good thing. Let's have this thing blow up and get true price discovery.

bigkahuna's picture

If things carry on the way they are now, physical shortages, none of this is going to matter anyway.

Lordflin's picture

Margin is a suckers game...

disabledvet's picture

you could argue given the massive surge of equities...and now an even more massive surge of money into the mutual funds trading in that space...that "with economic recovery comes an appropriate (higher) prices for specie." in order to mitigate such a rise you could argue one should LOWER margin rates...as is actually being done according to this article. In other words "much more can be bought" if your credit is good and you want to take delivery. That could be seen as a CONFIDENCE building measure in that "a sudden surge in the price of silver would be regarded by the market as the returning of actual demand" instead of "an apocalyptic scenario" as it very much can be. (dollar crisis.) Of course if the price still falls when margin rates are lowered "so much the better" unless you are a mining company i imagine. "they would then become very cost conscious" i would imagine and try and extract their silver in the most cost effective way possible. in other words those mining companies would become VERY good at what they do...."and pay their investors accordingly."

silverdragon's picture

Buy physical Silver and don't stop, buying f*ck the manipulators. The more we buy the sooner the ponzi ends.

unrulian's picture

i've been depositing PMs in my local river for three years now....i don't do it to crash anything and i have yet to see any evidence of how buying silver by regular stackers will crash JPM or anyone else.... of course other than the ramblings of a bear and a rabbit on youtube

They Tried to Steal My Gold's picture

If the price of Silver is being held down by Blythe and the Morque with a little help from HSBC.....

Do like Marc Faber....buy some every month and just throw it in the corner....and when the whole ponzi scheme implodes or explodes depending on which end you are ojn.....they'll be asking how can there be so many short positions with this limited supply? 


and the answer doesnt matter because you;ve been buying every month and throwing it in the corner...

apberusdisvet's picture

Most of us on this site don't give a rat's ass for trading "paper" metals; we prefer the metals you can touch whenever you want.  It's the difference between masturbating and actually getting laid.

xtop23's picture

+1 Quite possibly the most apt comparison of paper vs physical metal I've read. 

Dingleberry's picture

Get physical. Stay physical.

Fuck the corrupt options market. How many more examples of fraud out of Wall Street and London do you need?

Those are for fools and/or criminals.

Don't be either.

joego1's picture

I think that if I want it I just buy some and hold it long. No complication, no third parties.

New World Chaos's picture

Relaxing the margin requirements is a good way to draw in speculators, get them to drive up the price, and then TPTB whack the market with unbacked paper while demanding a larger margin buffer.  This kind of skullfucking drains away any wealth that might someday flow into real metal, and it generally embitters people towards metals forever.  It has been a standard play over the last few years.  This is why you don't trade and don't buy on margin.  Phyz only.

disabledvet's picture

if i'm a publicly traded mining company i wouldn't be very happy either.
this one doesn't seem to be too bad: http://seekingalpha.com/symbol/slw
here's the world's largest gold mining company getting clobbered though:
http://seekingalpha.com/symbol/abx "better pay me in output" comes to mind. nor is this one any better: http://seekingalpha.com/symbol/fcx no wonder bank stocks are going through the roof. "reserves are now flowing towards the Fed" not as is presupposed "away from them." eh, "shoulda coulda woulda." sure explains this chart though: http://seekingalpha.com/symbol/iyt "for all you people bitchen' about delivery" i guess. "soon to be freed from the oil curse" i hear...

New World Chaos's picture

Yeah, miners are in a double bind because the metal is naked shorted and then their shares are naked shorted on top of that, to manipulate the correlation algos.  A miner would have to move to a less corrupt exchange, go private at low prices... or start paying dividends in small ingots made at the mine.  Imagine the panic that would cause among the shorts.

Peter Pan's picture

Plus 1000 New aworld Chaos. You either own it or you don't. Buying on margin means you are speculating and in my books it is highly leveraged plays that cause us much of the grief we have witnessed.

jballz's picture


Dear author,


$32 silver makes for $160,000 per contract. 16k margin is 10%. 

Listen to me very carefully, this issue comes up 12 times a month on Zerohedge and makes you all look like assclown amatuers. 

Somebody is taking margin risk when they let you trade. If I am your broker letting you trade on margin, I AM ON THE HOOK IF YOU GO DEBIT.

Why should I take risk for you? Further where the fuck else in the world do you get to own something for 10% of its face value?

Margins don't have to readjust to dropping volatility. If risk is perceived as high, margins will be high. Tell me silver can't drop 4 bucks in a day. Oh wait, this is Zerohedge so that actually can't happen unless the cabal makes it so. 

So tell me there is no way silver can't RISE $4 in a day. 

Of course it can, and the most important thing you all miss that evades all common sense.


If I have a spec trader short silver on 16k margin and the price spikes 4 bucks for whatever reason I am 5k in the hole. Anyone trading on thin margin, meaning if you don't have 50k in the kitty for a one lot, you're not a trader anyway you're a degenerate fucking gambler and you should be at the convenience store buying lotto tickets. 

If small specs can't buy because they don't have the margin, SO TOo CAN THEY NOT SELL SHORT. And I have shorted silver a lot more this year than have been long.

Silver margin is TOO LOW.

Stop pushing this dumbass myth. Calculate the face value of any futures contract and they are all pretty close, unless volatility is extremely high or extremely low. They aren't fucking with the margins to try and push people out, they are just covering their ass AND MINE.




Dude,  you might want to start breaing out the decaf

jballz's picture


finally a voice of reason.

will do. thanks.

Sean7k's picture

Regarding shorts having to post margin, JPM is allowed to use SLV shares to cover its' margin requirements. People should realize how this favors their short strategy. Buying SLV just makes it worse.

Cosimo de Medici's picture

JPM is helping the hedging of, among others, Carlos Slim, who controls the lion's share of Mexico's silver mines.  How can JPM hedge itself after assuming downside risk by hedging Slim?  Perhaps sell contracts on an exchange?  If so, what part of that book is visible to the Manipulation Crowd?  Yep, just the exchange shorts.  Come on, try to break JPM!  Blythe must laugh her tail off reading this site.

Do you know she LOST when silver tumbled from $48 to $30, because she was letting her hedge get a little too long?  The irony!

disabledvet's picture

Makes you wonder how Carlos Slim did as well. Is he pledging his mines as collateral? Or just the output? "Long only" can work well...for the bank...even if all the participants are losing everything they ever made. and of course "if the Bank fails then the Government gets the silver" since it's THEIR collateral that is being used via the Fed...yes, yes? Hmmmm. "the plot thickens...

XitSam's picture


Naked shorts post margins?

machineh's picture

'Naked shorts' is a term that applies to shorting stocks, not commodities.

All exchange-traded commodities require margin, regardless of whether one's position is long or short.

disabledvet's picture

didn't appear to be true with MF Global...

Market Analyst's picture

Your an idiot, just for kicks I calcualted S&P, Brent, copper, the euro/dollar future, etc. not even close - now coffee is close.


Silver was $40 an ounce with a margin less than 7k before, and the world didn`t end - ever hear of forced liquidations - please, futures are auto liquidated long before brokers are in danger. It is not like silver gaps up $15 during a 45 minute close. Oil would be much more dangerous , given that Israel could always do something crazy and attack Iran over the weekend.


It is not even close, the silver market is obviously getting special treatment margin wise, coffee is next in line with regards to special attention.


You have no clue regarding how exchanges set margins, and the formula they normally use - it is obvious they are utilizing a special formula versus other commodities, or even the same model they used 4 years ago.

disabledvet's picture

really? that oil market is HUGE. you would need TRILLIONS to move that price mr "Market Guy." Silver and Gold markets a TINY by comparison. In theory i could use the "gold silver price rule" and indeed move that market 15 bucks in 45 minutes. Just as these guys: http://en.wikipedia.org/wiki/Silver_Thursday

jballz's picture

Your an idiot, just for kicks I calcualted S&P, Brent, copper, the euro/dollar future, etc. not even close - now coffee is close.

Thank you I appreciate claims of idiocy from people who know jack shit about anything. If you looked up to me I'd have to blow my fucking brains out in shame. 


Crude Oil- $90 is 90k margin 5,700 -  6.3%


Corn- $7 is 35k margin 2,700 - 7.7%


HEY They are rigging corn margins! They are HIGHER than crude oil and Israel could bomb Iran and waaaaaaa and it's winter and there is no volatility in corn! WTF the cabal is killing me....waaaaaaa


In September silver dropped 10 handles in 2 days. That is $50,000 per 1 lot.


Show me another market that has done that...jesus, ever? 12k margin is TOO LOW.


Here is the truth for people not drinking the koolaid. Nobody gives a fuck about small specs. You are a rounding error in the bottom line. Nobody wants to discourage you from trading, because we KNOW you are all going to lose. You come in undercapitalized, you beleive all the same stupid shit, you pin all your hopes and dreams on some great fuckin idea, then you let your emotions get the best of you before the real action even starts and blow your wad and get the fuck out.


So the CME and the rest of us want all of you in all the time. You're free money. The real game is taking the real money from other players. Not specs, players.


Go buy some shiny coins and gtfo if you don't have enough money to play. It is really that simple. You think margin being 3% higher than corn in the most volatile market on the boards is a designed to push you out you're too naive to live let alone make financial decisions that are going to hurt you.


"You have no clue regarding how exchanges set margins, and the formula they normally use - it is obvious they are utilizing a special formula versus other commodities, or even the same model they used 4 years ago."


Really I've been doing exactly that for a couple decades, glad the checks clear I guess I fooled them. The special formula goes like this:




When you have a book of business, real business not you fucking penny slot junkies with a dream, you don't get to boot your clients because theu SUE you. You might win, you might get fucked in arbitrage, you will spend countless hours of your life fighting with everyone defending against errors, DKs, and hundred other real world factors that become amplified a thousand fold when dealing with debit accounts. It is not worth the risk. The rule of thumb and you can use it on any market listed- one really shitty day is what margin requirement is. That is the model. We don't trust electronic, because we can't, because I am never going to get stuck paying your fucking debit and neither is the exchange. That set in stone, it STILL happens. So take your "auto liquidated" playstation version of how the world works and blow it out your ass.


And for the OP, stop hyping this fiction. One more time, THE SHORTS POST MARGIN TOO.








new game's picture

everything you say is EXACTLY why I don't deal with YOU...

fuck your casino. I could say fuck you, but i'm not going to.

i'll take my shiny stuff and you can rip people off because you are so smart.

you represent what is wrong today!


Cosimo de Medici's picture

You missed one:

"futures are auto liquidated long before brokers are in danger"

There's that "infinite liquidity" that serves as the bedrock assumption of almost every economist's model.  Funny that infinite liquidity disappears just when you need it...even if you're a broker.

The danger is real, hence the margins.

disabledvet's picture

hmmmm. Inteesting. "Morgan has railroad cars" though. He can pay cash..."and store it on rolling stock." the "Silver Bullet Train" i think they call it. so that can be very MUCH supportive of price. You think a railroad wants to see the mine shut down? I DON'T THINK SO! And with a war going on those "small timers" very quickly became "bigger than expected" Mr. Trader Guy. So while it's nice to think "the dopes get washed out all the time and that's why we should have higher margins" some of those "dopes" are in fact BANKS. "and on the other side of that trade are economists" trying to "get the economy moving." hmmmmm. lowering margin would seem HIGHLY counter-intuitive given that one would assume an economic recovery is supportive of price in and of itself. Plus the banks have shoved all their bad debt to the Federal Government thus in theory "giving them a Government put"...one that turned out to be total B.S. actually. So again..."what does the lowering of margin" as is already being done actually DO again? You could argue should it increase trading activity that it is in fact increase CONFIDENCE that...indeed...the Government CAN pay its bills and thus be VERY supportive of a broad based economic recovery. Of course...to my knowledge i am the only one actually saying this...and indeed..."this recovery is anemic at best" thus causing prices to FALL "save equities and debt." hmmmm. VERY interesting indeed...