The COMEX has raised the margin requirements for gold and silverfutures contracts. Additionally, gold is trading in minor backwardation but this is probably not serious. The margin requirement rise validates the strength of the bull market. There will likely be additional margin requirement increases during this upleg.
A margin, or performance bond, is collateral that the holder of a position in futures contracts, securities or options has to deposit to cover credit risk. The use of margin greatly amplifies either the gain or loss with a position. The higher the margin requirement the more capital is required to control the same amount of the underlying asset.
One consequence that can result from using margin to purchase assets is a margin call. If the margin posted in the margin account is below the minimum margin requirement then the broker or exchange issues a margin call. The investor has to either increase the margin deposited or close the position and can be accomplished by selling the securities, options or futures if they are long and by buying them back if they are short.
If they do not do any of this the broker can sell his securities to meet the margin call. If the exchange is unsuccessful in executing margin calls and receiving enough capital then the exchange could fail.
The COMEX has recently raised the margin requirements for gold and silver contracts...
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