"Gentlemen, this is an interesting map which may be of interest.

"I have a question...when margin requirements are increased, when are they reduced again, is it when price reverts to the mean or, when the number of contracts contract to a certain level, or what? I have not been in the markets long enough to have seen this happen before, so any experience you can share on the subject will be very helpful and much appreciated. Many thanks

"PS. I love chocolate and I have some almost every day, either 100% as a drink, or 85% in bar form and I try to buy the best quality that I can. I'm very fortunate because I can afford both chocolate and Fullermoney (the kids finished college 5 years ago), but, if I could afford only one, it's very simple, the chocolate would have to go. Readers of the free abbreviated Fullermoney Comment of the Day, I implore you to where possible, cut out your 'chocolate equivalent' take the plunge with a full subscription and if you pay attention, soon you will be able to buy more chocolate than you can eat."

Eoin Treacy's view Thank you for the attached map which I'm sure will be of interest to subscribers. I share your love of chocolate and we appreciate the sentiment but you should take full credit for seizing and profiting from opportunities in the market.

 

We are not familiar with the exact mechanism used by exchanges in determining margin requirements, particularly following an acceleration in prices. I found this pdf of Minimum Performance Bond Requirements on the CME's website which contains data pertaining to silver's margin requirement beginning in January 2009. It clearly demonstrates a hiking of margin requirements as prices advance and lowering of them once prices have declined.

It is not clear just how the decision is made to lower margin requirements once prices have topped out. This chart of silver's open interest over the last decade demonstrates more the closing of positions close to expiry rather than the impact of changes to the margin requirement. I suspect that large price advances which endanger the correct functioning of the market are the primary impetus of aggressive margin hikes. If this is the case then it would not make sense to rush to lower margin requirements until prices have pulled back emphatically. If subscribers have additional information on this topic I'm sure it would be of interest to the Collective.