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Pastimes : Ask Mohan about the Market

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To: Cynic 2005 who wrote (9495)	11/26/1997 11:43:00 AM
From: Sam Citron	Read Replies (1) of 18056

Mohan, Anybody who has ever traded a commodity futures contract (eg, forex) knows that 5% margin is considered high. The leverage cuts both ways and you can be forced out of your position the very next day if you cannot pony up more margin money. Is this leverage causing excessive speculation? It depends. Speculation is good because it creates liquidity. Studies indicate that most individual commodity speculators lose because they do not know how to handle leverage. Margin rates were deliberately set low to attract speculators in order to provide liquidity. I do not think these margin levels have changed much in a very long time, so I find it hard to believe they are much of a cause of the "bubble" as you refer to it. SC

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