Category Archives: Trading

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Sugar Margins Increased

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yoda

The purpose of increasing the initial margin on sugar is so that you don’t kill yourself. Volatile commodities attract every amateur on the planet. Higher margins are not a sign to “get short” nor are they a way to punish speculators.

By instating a higher initial margin for the futures contract, it forces the would-be speculators to consider whether or not they will be able to perform on the contract. This maintains financial integrity in the marketplace between traders and contra-firms alike.

Such increases normally come from an increase in volatility. Based on the 20-day ATR, volatility for Sugar has increased 25% since October 1 through last week. This week’s price action brings that increase to nearly an 80% increase. If you are going to trade sugar, and you might need to deliver your house if the trade goes against you, wouldn’t you want to know that ahead of time? Me too.

The margin call you want to avoid is the maintenance margin call. That’s the one where you might have to add a few thousand dollars to your account TO BRING THE BALANCE BACK TO ZERO. By increasing margins, the exchange goes a long way to help you avoid that call. By increasing margins the exchange is acting responsibly.

The various exchange’s set the initial and maintenance margin rates and they can change them at any time. Member firm Futures Commission Merchants (FCM) can always make the margin rates more stringent, but they cannot make them more lax. For example, if The Ice mandates $3,550 for initial margin on March sugar SBH1, your FCM can make it $5,000 (“$5k to play”), but not $3,000.

I have personally seen margin for one particular commodity set at 100% of its notional value (price of the commodity futures contract x its standardized size). Message: don’t trade this commodity here. Your money drama is not our business…literally.

If you start seeing $60 – $100 range days (long-ruler days) regularly in gold, for example, you’ll see margins get bumped there also. Hope this helps.

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Victor Sperandeo on Mid-Term Election Results & What They Mean For Markets

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I called Victor early this morning because I wanted to get his undivided attention on the mid-term Election results. Here are a few snippets, but you should listen to the podcast for the full brunt.

Although the Stock Trader’s Almanac 2011 suggests otherwise, Victor does not think the current White House / Congress combo is doing to do anything for the stock market.

“We still will not have a vibrant, strong economy if people cannot overcome the system…the Marxist, Liberal system holding back the United States,” he said. This is exactly what I was getting at in my post at the Communist Manifesto, The Huffington Post What Choice Do We Have In November? We’re Not Free No Matter Who Wins.

“Pelosi, Reid, and Obama are Marxists. Boxer and Brown? Oh my god. You can kiss the CA Muni bond market goodbye. They are not going to get a bailout,” he stressed.

I asked him to put a handicap on The Stock Trader’s Almanac research that suggests that a Democratic White House and Republican Congress has resulted in an almost 20% rise in the stock market. “No chance.” And that’s in the face of the fact that there has not been a down year in the market during the third year of the President’s term in the last 72 years!

The worst “third” year was under Hoover in 1931, when both the White House and both chambers of Congress were Republican: The Dow was off over 50% and the S&P was down 47.1% according to the Stock Trader’s Almanac 2011

In what could be a foreshadowing, Hoover and the Congress passed the Federal Home Loan Bank Act into law in 1932, to spur new home construction, and reduce foreclosures. The plan seemed to work, as foreclosures dropped, but it was seen as too little, too late.

When you put enough people who would otherwise be on the dole, on the ever-expanding government payroll, you will always get re-elected because not getting elected means no more government grilled cheese.

Government will never become smaller unless there is a revolution.

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Gold versus Gold Stocks (GLD, GDX) Plus Charles Goyette Interviews

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gold.gold.stocks

I’m always surprised when I hear people say that they are going to play gold by trying to own gold stocks. The same can be said for crude oil. The best way to play the commodity, is the purest play: Buy the commodity.

Commodity companies may have hedged their production several years out and will not participate in any rally in the gold, for example. And buying a diversified basket does you no good either. It just dilutes the opportunity further. Plus, you have to deal with the stock market.

Did you get the e-book yet?

Gold is Gold – Michael Martin

Gold.Continuous.chart

The Price of Gold is a referendum on the US Dollar. – Charles Goyette

DX.Continuous.chart

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Watch the interview I did with Charles Goyette in February of this year about his book The Dollar Meltdown.

Listen to the podcast interview I did with Charles Goyette a little over a year ago.

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Everyone’s An Expert On Election Day: Smart People Hate Being Wrong – Would Rather Lose Money

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I mentioned Phil Tetlock the other day in my article Daytrading Has Been Dead For At Least 20 Years – Mutual Funds Even Longer at The Business Insider and got a few email responses about him.

Read this interesting piece about his work from The New Yorker:

“More serious commentators differ from the pundits only in the degree of showmanship. These serious experts—the think tankers and area-studies professors—are not entirely out to entertain, but they are a little out to entertain, and both their status as experts and their appeal as performers require them to predict futures that are not obvious to the viewer. The producer of the show does not want you and me to sit there listening to an expert and thinking, I could have said that. The expert also suffers from knowing too much: the more facts an expert has, the more information is available to be enlisted in support of his or her pet theories, and the more chains of causation he or she can find beguiling. This helps explain why specialists fail to outguess non-specialists. The odds tend to be with the obvious.”

I think Phil Tetlock is MONEY.