Silver & Margin Requirements: How the CME System Increases Volatility
Wednesday, November 23, 2011 at 09:11AM
Silver Prices

In this article we investigate the 2011 Chicago Mercantile Exchange (CME) silver margin requirement increases and what effect they have had. Margins necessarily need to rise and fall, to ensure there is minimal default risk in the market, but the system the CME utilizes to achieve this has a lot of room for improvement in our view.


The chart below illustrates our main point that the discrete manner in which the CME can change margin requirements for silver futures trading has led to an unnecessary increase in volatility in the silver market.

A continuously changing margin system would remove much of this uncertainty and therefore add more credibility to the market.


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