Silver futures rallied despite CME margin hikes, driven by extreme volatility, demand, and safe-haven flows.
The rally in silver futures continued unabated despite CME Group’s Commodity Exchange (COMEX) raising margin requirements for derivatives tied to precious metals such as silver, platinum and palladium.
What Are The New Margins, When Will They Take Effect? In a letter to stakeholders involved, CME Group’s Clearing division said the performance bond requirements for trading in the precious metal futures have been revised in order to ensure adequate collateral coverage, especially in light of the volatility.
The new rates will take effect after the close of business on Wednesday, Jan. 28.
For non-heightened risk profile (Non-HRP) standard Silver futures (SI) contract trading on the COMEX, the initial margin has been increased to 11% from 9% and the applicable initial margin for HRP contract is 12.1%, up from 9.9% earlier. The initial margin is the mandatory upfront good-faith deposit required by exchanges or brokers to initiate a leveraged position. It would act as collateral against potential default.
The maintenance margin — the amount of capital that must be available in a trader’s account to keep a leveraged trade open — has also been increased to 11% from 9% for both Non-HRP and HRP contracts.
Earlier Jan. 13, CME changed the way for setting margins, basing it on a percentage of so-called notional from a dollar amount to tackle volatile price swings.
Silver Volatility That Prompted The Margin Hike: Silver futures have been on a tear, riding on the metal’s safe-haven appeal, its industrial demand, and supply constraints. The debasement trade, referring to rotation out of fiat currencies and fixed-income securities amid geopolitical tensions and dovish central bank stances and into hard assets, also buoyed the white metal.
Source: TradingView
The most actively traded March contract topped $100 a troy ounce last Friday before ending the week at $100.93. The uptrend continued this week, with silver futures hitting a fresh high of $117.19 on Monday before pulling back on Tuesday amid weak U.S. economic data. The rally has resumed since.
The CME Group Silver CVOL Index (SIVL) is trading OVER 106, indicating high implied volatility, exceeding levels seen during the COVID-19 crisis and the 2021 metals peak.
Source: CME Group
Will Latest Margin Hike Impact Prices? Margin adjustment is a routine strategy to address volatility in the prices of derivative instruments. Higher margins will likely ward off smaller traders from entering the market or adding to their holdings.
The margin hike, however, did not deter traders. Micro Silver futures drew strong interest. In a post on X on Tuesday, CME said, “Micro Silver traded 715K contracts, the most ever with a huge 14% / $14 trading range” on Monday.
The record Micro Silver trading volumes indicate sustained speculative and hedging interest despite higher margin requirements.
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