Wednesday, April 17, 2013

Why were margins increased on Equity futures? hmmm...

Are debit balance margin calls coming for Equity futures traders now too?

Let me take a stab at it. First, consider that the activity in Gold, Silver and Commodities has put many futures accounts in debit balances. That means that the accounts now owe the broker money and the broker is responsible for the loss and must proceed with collection efforts. This is what happens when a market is so fast that margin calls can not keep up with margin calls. We currently have a state in the equities futures where people are more leveraged than normal to put it lightly and brokers have taken losses on accounts which now have debit balances. It is usual for the exchanges to lower margin requirements at times like these for equities allowing the maximum number of people to trade the maximum number of contracts generally to the long side. It is indeed curious that ICE and CME are making adjustments to margin before there has really not been much equity volatility, This is in direct contrast to what they have done nearly every time equity futures are making new highs. In fact, it has been a pretty reliable indicator that when equities are making substantial new highs over the last years and margin rates are reduced that markets will take a significant fall. It happened before flashcrash, before the 2011 27% drop and nearly every other time…but now in total reversal of pattern the exchanges have raised margin requirements…and something smells in Denmark... Spain,Italy,Portugal,Greece, Ireland, Cyprus, Slovania, Hungary, Lithuania and France…too
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