Tarnished trading

For those "populist" traders who have been propelling silver to recent new heights, please heed my words. When you buy (go long) silver futures, you have entered into a legally binding obligation to purchase and take delivery of 5,000 ounces of silver. The margin money deposited with your brokerage firm is a good-faith deposit, not a down payment. And should you fail to liquidate by the contract's First Notice Day (better check this date out, kiddies), you will have to come up with the full cash value. (Conversely, if you sold short, you'd be obligated to deliver 5,000 ounces of silver if you failed to liquidate by the contract's Last Trading Day.).

And don't even get me started with what happens when your marked-to-the-market equity goes negative. Of course, the elegant economic beauty of futures contracts is the ability to offset that obligation by liquidating one's position. But sometimes, just sometimes, that equates to emptying the crowded movie theater with a mad dash to the lone exit door. For these budding traders unaware of the history of forcing silver futures beyond its fundamental values, I urge you to Google "the Hunt Brothers and Bache & Company."

Larry Schneider

Lincolnshire