CME Increases Margin for Silver Futures Contracts due to Expected “Larger-than-Normal Price Swings”

JP Buntinx
July 25, 2020

Following the recent silver price increase, speculators may be inclined to short the market. An understandable sentiment, although a potentially costly one. Especially CME traders may want to take note of the new margin increase for futures contracts. 

A Bold Move by CME

Gaining exposure to precious metals such as silver and gold is an easy task these days. One doesn’t even need to dabble in physical metals, or even their digital counterparts. Opting to trade in futures is becoming  a lot more appealing as of late. It requires less hassle, yet it provides all of the same benefits of handling the metals directly. 

One platform to trade in silver futures is CME. However, the company recently introduced new margin trading requirements for silver futures contract trading. It is a remarkable decision, as no other commodities are affected by this sudden change. Due to this change, it appears as if CME expects a significant rise in overall silver price volatility. Not entirely surprising, given the recent price surge. 

Opening a new silver futures position will require an extra $1,000 to be posted as margin. This will apply to going either long or short, which may make it less appealing to go against the market as of right now. This extra “bond” seems to confirm that big silver price changes are looming on the horizon, either for better or worse. 

According to CME spokespeople, there will be “larger-than-normal moves in the silver market” for the foreseeable future. By default, that would indicate a similar trend may affect gold and other precious metals. However, none of those have had their margin for futures contract trading increased. This creates a very interesting, albeit somewhat confusing situation for onlookers.

What Comes Next for Silver?

The recent margin changes by CME paint an interesting short-term future for silver. Raising the margin requirements seems to be a sign for shorters to not go against the grain right now. At the same time, it will also make silver bulls put their money where their mouth is. A very dangerous game to play, as this market has entered uncertain territory for now. 

Looking at the technical aspect of trading silver, interesting levels have been triggered. The current silver price is already in the Fibonacci extension range. As such, one could argue the outbreak may have run its course, for now. That being said, silver also overcame a retrace to the 0% Fib line without losing it as valuable support.  

This strong and steep uptrend creates a lot of uncertain market momentum. A future price increase remains likely, but so does a temporary market retrace. Current price levels have not been seen since 2013, indicating that a major market cycle may have come to an end. Breaking out to just above $35 remains possible, but it will be a long-term goal first and foremost. Not necessarily an ideal target for futures traders. 

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