It was this 10% number that helped contribute to the crash of 29'
Move it upwards of 50% maybe even 75%.
33.33 percent would shave off a bunch of the speculators...........
Stock shares represent proportional ownership of a company, and a 50% cash figure is a quite reasonable requirement when dealing with ownership.
Futures ''margin'', contrarily, is simply a performance bond ensuring that the hedger or trader will hold to the terms of the contract traded, as well as be responsible for any trading losses.
Now, where in your experience, where on this planet does someone require a 50%-of-net-contract-value as a performance bond?
I don’t think raising it that high would be useful, at least not on everyone.
There are several different parties now in the commodities markets. Traditional commodities markets have had:
- producers, forward contracting and hedging
- consumers, forward contracting and hedging
- speculators, helping make a market along the way.
These people aren’t the problem, as they’ve always been in the markets.
The recent problem is caused by huge “commodity index funds” and “managed commodity futures” products which people are treating like stocks. Look at the ETF’s “DBA,” “DBC” and others like these.
Speculators are just that - speculators. They’re speculating that there is a price movement going to happen in the future based on some information, analysis or condition in the future that isn’t currently priced into the futures contracts traded on the market. That’s it. Once the price movement happens, a speculator will take profits and exit the position, or if the timeframe passes, the speculator might exit with a loss.
The recent “commodity index” funds and vehicles have brought HUGE amounts of money into the commodities markets that is trying to treat commodities as an “investment” - the way you or I might buy a SP-500 index fund.
This is the problem, IMO. Commodities are NOT an “investment.” Companies that make, consume, add value to or otherwise touch commodities might be an investment, but the commodity itself is simply not an investment. Look at gold. There’s all manner of people who keep talking about “gold as an investment.” When measured as an investment, gold’s track record is horrible. Yes, it has price spikes, but, as with all commodities, eventually more production comes into the market to capitalize on high prices and the prices come down again. The prices continue to go down until low-efficiency producers are pushed out of the market, the excess production capacity is removed from the market and the prices stabilize. Along the way, a commodity’s price might go up or down as a reflection of the currency used to buy or sell the commodity, but overall, there isn’t a net return to someone holding the commodity as an ‘investment’ the way there is for someone holding a stock in a good company or an index of stocks.
The commodity index ETF’s and other such instruments don’t settle their trades in the commodities markets the way a speculator, producer or consumer does. When the settlement date of a futures contract approaches, these commodity index ETF’s simply sell their current holdings (ie, settle in cash) and then they immediately buy contracts further out in time - ie, they roll the money forward, regardless of the price of the contracts in the future. This looks like demand and the market responds by raising prices out in the future, regardless of what production & consumption in those markets might be in the future.