Originally Posted by chroNick
That's a lot better as I don't have any experience with options. A futures contract for 5,000 ounces requires you to put up $6,500 in a margin account with your broker per each contract or only $1,300 per 1,000 ounce mini contract.
You are then in it as a gamble on any movement in the market from your starting point. If your contract is based on a future months price, the price is set at a higher starting price than the current spot price for that future month.
Now I don't know what the Brokers fee is for any of these contracts as part of the margin fee you have to cough up to even play with a futures contract, but it doesn't really matter as a one cent move on a 5,000 once contract is $50 one way or the other and you are responsible for that move or it's a gain in your account. How you can say this is safe hedging for anyone not gambling is beyond me and I don't know how you can say it's only a couple dollars per side without looking at the potential loss per minute let alone day or month no matter if your betting long or short.
Your looking at a $1.30 swing in the wrong direction and your margin account is wiped out and that is done in one day in the Silver market. At least on the down side and a two day swing on the up side in the best of markets.
In the event your broker decides you are too close to your limits edge he then can demand a margin call and you would then be required to put up additional funds or he closes your contract and it doesn't matter if you are way in the positive side as margin calls are not one sided in the event it is made on the basis of so called volatility and nothing else as was the case in April of 2011 when five margin calls were made in just over one week. Which forced people out of the market in droves that didn't have the capital to meet the demands. Not that they were all losing money, they were just forced to sell their contracts when they were looking to keep making money and the end result was a drop in the market as there were to many selling and not enough buying. Imagine having to come up with an additional $32,500 to keep your single Silver contract that was wining big time and you didn't have the capital. Actually those that were forced out first were the ones that made out the best as the price was the highest. Assuming they were on the long side and still profitable. Whatever the case, the commodities market can be a bitch for those gambling when things go against them for any number of reasons. The CME controls the market and it's their rules and they have the ability to implement the changes as they deem necessary to maintain whatever they call it. People think it's rigged today, but April 2011 showed just how rigged it can be against the players when the CME wants to take the casino in a different direction.
There are only two types of contracts on the Silver commodities market, a future contract and an options contract. I don't know where derivatives are sold.
As far as anyone borrowing money to buy Silver to try and run a coin shop, that's a really bad idea, even for a larger more successful shop that is well established, but for a new start up coin shop that has no reputation, that's just asking for a bankruptcy filing. Most small business owners never make a dime in the first several months of being in business if ever and to add the problem of a monthly loan to their disadvantage, just increases the likelihood they will be one of the high percentage of failures in their first year. You can call that management of anything you like, but it's only playing with fire for the little guy and an established player that is borrowing money, well he hasn't been all that successful or he wouldn't be borrowing money either. Coin dealers are not like many other businesses, they are at the mercy of the general populations interest in gambling in the precious metals market at the time and it can be very lucrative and it can also go into a long drought with no sales at all. That's why the little guy is not just selling precious metals but other things as well so they are not dependent on the price of metal going it their favor for sales only. Other hobbies can be profitable and they are far less volatile and still bring in some additional income.
Last edited by valerb; 26th February 2017 at 03:04.
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