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What does “margin hike” mean?

April 29, 2011

CME has hiked silver margins twice in the last week, both times sparking a sharp selloff (thats later reversed). The non conspiracy theorist will tell you that the purpose of a margin hike is to keep an orderly market. When a product begins to shoot higher by 3,4,5% every day, the exchange grows concerned that its going to crash just as fast or faster than it went up.

So the exchange raises margin requirements to make sure that investors have more cash on hand in the event of a major collapse in the product. Hypothetically this means traders have to sell their silver to keep more cash on had.

A conspiracy theorist will tell you that the reason silver continues to get its margin rates raised is because the CME is in collusion with JPM in trying to suppress the market.

Here is the interesting part. Every time a margin hike takes place, silver has a quick, sharp selloff. However following that has lately always been a very fast, profitable retracement. The CME’s main policy tool is 100% ineffective! This is pointing to a very strong market, and a lot of willing buyers out there.

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