May 13, 2011, 12:56 a.m. EDT
Protect your silver, gold, oil from margin hikes
How to spot the next commodities trading shock
By Claudia Assis, MarketWatch
SAN FRANCISCO (MarketWatch) — Professional traders can tell when exchanges are about to impose margin hikes on investors to trade silver, other metals and commodities futures.
Individual investors typically own commodities through exchange-traded funds and mutual funds rather than futures. But these shareholders are at risk when traders are forced to put up more margin, as was painfully clear in the wake of silver’s recent plunge. So it’s important for smaller players — whether they own funds or have a trading account — to hone a trader’s instinct by recognizing the signposts of a coming margin hike and taking steps to protect their portfolio.
Margin works like a prepaid calling card — investors pony up a minimum amount to charge their account. This money can’t be borrowed and has to be put aside specifically for the purpose of trading commodities.
Investors reap the profits when things go as they hoped. But when the market goes against them, and the amount of an investor’s holdings falls below the margin minimum, the account has to be replenished.
A wave of margin-requirement increases in recent weeks has triggered a deep slide for commodities prices. CME Group Inc. /quotes/comstock/15*!cme/quotes/nls/cme CME +0.81% , which owns the main U.S. exchanges for metals, grains, and energy, raised margin requirements for several of its energy products this week, including oil and gasoline, and announced a second hike for gasoline futures effective Thursday.
Earlier this month, a series of CME margin increases in silver futures rocked the metals markets and brought losses upon all commodities futures, as investors who couldn’t meet the new silver requirements had to liquidate their positions, dragging prices down. Silver suffered its worst five trading days in more than 30 years during the first week of May, with silver-futures prices down almost 30%.
Article continues: http://www.marketwatch.com/story/protect-your-silver-gold-oil-from-margin-hikes-2011-05-13?dist=afterbell
Gold is $1,581/oz today. When it hits $2,000, it will be up 26.5%. Let's see how long that takes. - De 3/11/2013 - ANSWER: 7 Years, 5 Months
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