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Silver Wheaton Corp. Message Board

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  • john_longstock john_longstock Nov 17, 2010 12:54 PM Flag

    CME's Criminally-Timed Silver Margin Increase-They Pulled Out Every Dirty Trick

    Pol (or anyone else),

    "In fact, this short-covering is why we had such a vicious sell-off on Friday."

    I'm not sure I understand that statement. If we had a ton of shorts covering last Friday, the price would increase, not decrease, wouldn't it? TIA

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    • Alas, it is a well known and timeless feature of the markets that trading firms, pools, and even individual traders can push a security up or down in such a way as to induce others to join in or reinforce the move to such an extent that the original mover(s) can get out of their positions at a profit (or smaller loss) even as the price move continues.

      Before the 1929 crash this was common and accepted practice and newspapers used to comment on it and tell their readers how to profit from these manipulations. After the SEC was formed in the depression the practice had to go underground as it was made illegal. It still goes on to this day, the methods are usually just more subtle or come into existance when loopholes are found in the existing laws.

      The current flavor of the month legal method of manipulating the price of securities is High Frequency Trading. The fact that it accounts for roughly 70% of daily trading on the stock exchanges speaks volumes about how nothing changes but the changes.

      • 2 Replies to ltvalue
      • Old Joe Kennedy was one of the biggest manipulators. He had agents in every major city that would buy or sell on Q from different accounts.

      • "Alas, it is a well known and timeless feature of the markets that trading firms, pools, and even individual traders can push a security up or down in such a way as to induce others to join in or reinforce the move to such an extent that the original mover(s) can get out of their positions at a profit (or smaller loss) even as the price move continues.

        Before the 1929 crash this was common and accepted practice and newspapers used to comment on it and tell their readers how to profit from these manipulations. After the SEC was formed in the depression the practice had to go underground as it was made illegal. It still goes on to this day, the methods are usually just more subtle or come into existance when loopholes are found in the existing laws."

        The "Bucket Shops" of the late 19th century through the roaring twenties were notorious for this behavior but their customers operated on 100% margin in effect. Bucket shops didn't even execute the order. They put it in a bucket and settled up with the customer at the end of the day. The abuses were rampant and great fortunes were made and lost (read "Reminescences of a Stock Operator"). In the 1980's there were such penny stock operators as Blinder Robinson out of Denver trading in penny mining and oil stocks. The manipulation in these was rampant as well. No one doubts there are sharp elbows being thrown in the options markets but it isn't as blatant and as "manipulative" as it's routinely described on these precious metal message boards. In my opinion it's a bunch of Johnny one-notes who don't have a clue what they are talking about...and once again...I'm long the metals...I would guess as long as anyone on this board. When I sell, it's 10% at most of a position. I'm just trimming a big position in silver and gold in hopes of buying it back at a cheaper price, not dumping it, and certainly no dumping on it.

    • To answer your question more directly here is how it worked:

      1) Suddenly raise margin requirements by 30% after normal trading

      2) Traders get at start of next days trading margin calls demanding they put up more money

      3) Many traders can't/wont put up more money so they start selling off their positions to raise cash to meet margin calls.

      4) Prices start dropping quickly in the face of #3 selling, causing more traders to get margin calls or hit their sell stops and these new traders start selling.

      5) The member/commercial firms who have large short positions at the start of this bear raid begin selling short more futures contracts into the already declining market.

      6) Prices start dropping even more after #5, causing yet more traders to get margin calls or hit their sell stops and these new traders start selling.

      7) Traders who were not crushed during #1-6 realize the party has started and start selling short into the already declining market.

      8) Payday! The member/commercial firms who were originally short big time start slowly covering their net short position, such that over time it is significantly lower than when #1 started

      9) Prices continue falling for awhile until a new equilibrium is reached in which the weaker traders were wiped out or had to get out.

      Classic bear raid. As old as time. Still going strong in the 21st century......

 
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