CME raises palladium futures initial margin by 200% in one month

Discussion in 'Commodity Futures' started by shatteredx, Jul 13, 2017.

  1. shatteredx


    Anyone else notice the required initial margin for palladium futures went from $4950 to $10,340 over the course of the last month?

    Did a bunch of retail specs get wiped out by palladium recently? Vol is up maybe 30% but nothing crazy.

    I'm not trading it right now. Made a few losing trades in it earlier this year around March and moved on to instruments with better liquidity.
  2. Overnight


    Maybe it is related to speculation that increased electric car usage may cause less demand for it in making cat converters for gas engines? Maybe someone at the CME has an inside skinny on potential palladium mining disruptions?

    *shrugs* Who knows.

    You could always call the exchange's risk department and ask directly why the margin was raised so much.
    murray t turtle and shatteredx like this.
  3. Millionaire


    Thats 109% not 200%.
    shatteredx likes this.
  4. shatteredx


    Haha yes, over 100% not 200%, my mistake.
  5. shatteredx


    Good suggestion. I emailed CME and this was their response:

    Clearing Risk Management <>

    Hello xxxxxxx,

    Margin rates are based on several factors, one of them being implied volatility, which has increased lately driving the need for higher margins.

  6. Overnight


    Too bad e-mail is not the same as speaking with a human. I suggested you call them. Speak to a human. Implied volatility, sure. But what is driving that implied volatility? Someone over there must know what the dealio is that is coming up, else it is just driven by historical computer models. I'll call them up tomorrow and ask, see if I can get an answer other than IV.
    murray t turtle likes this.
  7. They already gave you the answer. The CME adjusts margins in a very formulaic way. They stress test % moves, as well as standard deviation moves higher and lower. Then they compare the margins to those tests. If the margins arent within certain ratios, they adjust the margins. Easy.

    In this situation IV's have risen enough that the CME raised margins. The answer they gave you is simple, because the reality of the decision is also simple.
    drm7 and murray t turtle like this.
  8. %%
    Sounds right + reasonable; but if i were trading that =i would most likely make the call, also......
  9. maxinger


    Palladium initial margin is probably the highest at > $11K.

    perhaps the exchange should consider having mini Palladium.

    anyway PA volume traded is rather low.
    Last edited: Apr 8, 2019