June 21, 2024

COMEX Increases Silver Margin Requirements for Third Time in Past Week

On Tuesday, May 3rd, the COMEX raised margin requirements for trading silver futures contracts. This was the third increase in the past week.

The new margin requirement per contract was increased from $14,513 to $16,200 for initial margin and from $10,750 to $12,000 for maintenance margin.  Hedgers in silver futures pay maintenance margin as initial margin while traders are required to post the higher initial margin amounts.

Effective last Friday, the COMEX had also increased initial margin from $12,825 to $14,513 and from $9,500 to $10,750 for maintenance deposits.

Two days prior to this, the COMEX had also raised margin requirements. On April 27th, margin for initial contracts were increased from $11,745 to $12,825 and margin for maintenance contracts was increased from $8,700 to $9,500.

The CME Group, which owns the COMEX, has been raising margin requirements in an attempt to reduce volatility and protect itself from potential losses generated by large price moves.  As recently as early February the initial margin requirement per silver contract was only $6,075.

Although margin requirements have been raised significantly, the margin required as a percentage of total contract value has remained within a relatively narrow range of between 6 and 8 percent.   The increase in COMEX margin requirements have merely tracked the increase in the price of silver.

Under current margin requirements, a price decline of 8% could wipe out the margin of a silver trader leaving the COMEX exposed to potential losses if the trader does not come up with additional cash.  As silver prices have climbed almost nonstop, the COMEX has raised margin requirements ten times over the past year in order to maintain the same percentage of margin to the silver value represented by one contract.

Even with the higher margin requirements, silver futures contracts allow a trader to make a highly leveraged investment.  One silver futures contract is for 5,000 ounces worth $218,050 at yesterday’s closing London Fix Price.  The new higher margin requirement of $16,200 represents only 7.43% of the value of  one silver futures contract.

After trading close to the $50 per ounce level late last week, silver closed Tuesday at $41.72 in New York trading for a loss of over $8 or 16% over the past two days.