Margin Requirement Impact on Commodity Price

    The U.S. Government is desperately seeking methods of handling the increase in gas prices and has decided that further regulation of the commodities market will help solve our issue.  The basic premise is that if the margin requirements are higher, speculators will be unable to make huge bets and or push the price of oil to any extreme, due to the amount of cash on hand required to hold the position.  Anyone that has ever been involved in the trading business knows that margin requirements don't stop speculators from trading, it only takes the "little guy" out of the equation.  Currently the oil contract continues to rise as longs are hedging their bets by paying short sellers a hefty premium to take on the position.  This premium continues to rise as the price of oil goes up, as it is becoming more and more risky to take a short position.  However, if the government increases the margin requirements, there will be less takers on the short side, thus forcing the price of oil through the roof.  While this squeeze may not be sustainable for the long-term, over the short-term it will prove costly at the pump.

     

    Tim Ord
    Ord Oracle

    Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...

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