Monday CME: A quick lesson on margins.

Just to help a few folks out...

CME=Chicago Mercantile Exchange. It's the commodities equivalent of the NYSE. It's where things like cocoa, coffee, pork bellies and corn are traded.

Typically a coffee "contract" is to "control" 37,500 lbs. of coffee. Lets assume coffee is trading at $2.00 lb. At that price, a coffee contract would cost $75,000 to purchase outright.

Since most people have no intention of actually taking delivery of the coffee and since it would make it difficult for most people to trade commodities, they use what is called "margin". If margin is 10%, then you can "buy" a coffee contract for $7500. If coffee goes up $.10/lb then you just made $3750. But at the same time, if coffee goes down a$.10/Lb. you have to "cover" for $3750!

The amount you "paid" initially for your coffee contract is called "initial margin". The amount of cash you keep in your brokerage account to cover losses is called your "maintenance margin". The number can vary depending on variables that I won't go into. The CME can raise the maintenance margin at will base on market volatility, etc. If they are expecting adverse price movements that will exceed total maintenance margin on deposit, they will have a "margin call", meaning you need to put some cash in your account NOW or they will take ownership of your stock/commodity.

With regard to what is supposed to happen Monday, I don't fully understand what triggered this margin call so I can't elaborate on that.

Hope this helps somebody.

reply to post by axslinger


Outstanding OP! This really is a concise and extremely informative bit of post. I personally learned a lot from it, and S&F for you.

(And to think I only clicked because I saw "CMEs" and thought, "the Sun.")

Whoops we've baked to many (fill in the blank)

???

Here is the memo from CME and it says there lowering the call to 1.0 ..

CME Group Clarifies Maintenance Margin Ratios Exchange to Reduce Initial Margin Ratio to 1.00

Link to memo

I was under the impression this was the EU Precious Metals company.

This changes the whole landscape.

Yeah its a good thread and all, S&F. But all it does is provide and teach useful information, thereby aiding me to become more knowledgeable and educated in matters of margins for trading purposes - and further raising aggregate intelligence of ATS members.

It don’t give me that high. That rush. That euphoria I feel when reading stuff like: ‘It all ends Monday’! Hundreds of billions, hundreds of trillions! Millions of trillions! TRILLIONS OF TRILLIONS!

Global GDP is but small pocket change!!! Prepare, the financial world of planet earth is about to EXPLODE!!! Woo hoo!

Now we haven’t had a juicy thread like that for a while.

Whats shakin in the markets this morning?

Anyone?

Originally posted by surrealist
Yeah its a good thread and all, S&F. But all it does is provide and teach useful information, thereby aiding me to become more knowledgeable and educated in matters of margins for trading purposes - and further raising aggregate intelligence of ATS members.

It don’t give me that high. That rush. That euphoria I feel when reading stuff like: ‘It all ends Monday’! Hundreds of billions, hundreds of trillions! Millions of trillions! TRILLIONS OF TRILLIONS!

Global GDP is but small pocket change!!! Prepare, the financial world of planet earth is about to EXPLODE!!! Woo hoo!

Now we haven’t had a juicy thread like that for a while.

Hehe.

'It all ends Monday' and 'trillions and trillions' in the same post is a guaranteed way to get 100+ flags and stars.

Never let the facts get in the way of a good doom thread.

reply to post by axslinger


Very Good Information!....Threads that offer useful information are Often over looked and receive little attention..
Example I recently posted a thread about the spread of Germs and most contaminated surfaces (including gas pumps) thinking that this information may actually help people to know where to direct the most caution.. .I think I got a single flag.........dirtiest surf my point silly BS I what people want..I want to spend my little money wisely and stay healthy so I can make more..

SnF

Originally posted by Shadowalker
Whats shakin in the markets this morning?

Anyone?

We are going to have to wait till the 23rd they moved it. source fox news channel on T.V.