By the close of trading on Wednesday, May 4th, the silver market had experienced significant selling pressure that drove prices down by 17.3% from Thursday, April 28th. This sell off corresponded exactly to a series of increased margin requirements by the COMEX for trading silver futures contracts.
Silver traders who may have been apprehensive about additional margin increases did not have long to wait. After the close on Wednesday, May 4th, the COMEX announced two huge additional hikes in silver margin, effective at the close of business on Thursday and another hike effective at the close of trading on Monday, May 9th. As of Monday, initial contract margin requirements would be increased to $21,600 and to $16,000 for hedgers. A year ago, when silver was trading in the $18 range, the margin requirement for a speculative contract was only $4,250.
The rapid series of five margin increases by the COMEX resulted in raising initial margin requirements for speculators from $11,745 to $21,600 – an increase of 84%. The margin requirements for hedgers also increased by 84% from $8,700 to $16,000. Silver futures traders would now be forced to come up with huge amounts of additional cash or liquidate holdings on price weakness. The collapse in silver prices on Thursday May 5th, triggered by the COMEX margin increases, indicates that many players were forced to liquidate positions.
The actions taken by the COMEX constitute a perfect text book example on how to crash a market.