Raising Margins in Volatile Markets Is a Protective Measure

Increased price volatility in the silver markets in Q2 2011 has resulted in a series of increases in margin requirements, also called performance bonds, for futures traders – meaning traders have had to have more money in their accounts to cover the amount of potential losses they could incur in a day of trading.

This two-page presentation by Howard L. Simons of Rosewood Trading explains:

• How lack of margining helped create the financial crisis of 2008
• Who sets margins and why
• Why margin increases are necessary and beneficial

Simons illustrates his argument with a graph of silver prices from Aug. 27, 2010 to May 6, 2011 and corresponding margin increases from CME Clearing.