How much more "Initial Margin" would be required by Hedge Funds if they were reclassified as "Speculators"?

Question

One reason for inflation of commodites such as oil and corn is due to speculation. Hedge and Index funds are a HUGE part of this. And to top it all off they get to play at a discounted rate, fitting into a "Hedger" loophole, even though they don't tangibly own the commodity (Thus the definition of hedger).

It is my opinion that if the intial margin requirement was raised to the "Speculator" level, it might curb the funds without totally disrupting the marketplace.

So again my question is if the requirement were raised for the participation in these futures contracts, would the dollar amount be sufficient enough to slow down the funds without eliminating them? Your thoughts?

Answer 1

There is a reason why people are speculating now more than before.  And the best way to decrease speculation is to eliminate that reason.

The Fed has been flooding US money supply for a number of years by keeping the interest rates low.   Many people have lots of money but their money is continuously decreasing in value because the interest rates are below the inflation rate.  And these people have no choice but to look for tangible goods to put their money in so that the value of their money doesn't disappear over time.

If the government prevents people from putting their money into oil and food commodities.  Then these people won't have any choice but to find some other tangible goods to invest in.  And then perhaps things like coal, copper, aluminum, silver, gold, platinum, and palladium will soar in price.  

Or worse, these people might loose their faith in the US dollar and try to convert their money into the Euro, the Swiss Franc, the Japanese Yen, and other currencies.  The US dollar will plunge in value.  And everything the US imports from other countries will suddenly become very expensive in USA, including oil.  

I think the Fed should stop flooding the money supply and raise the interest rate above the inflation rate.  And then people won't need to speculate in order to preserve the value of their money.

Answer 2

The ignorance about futures markets is astounding.

Everybody pays the same margin.  A bona fide hedger doesn't have to follow position size limits.  That's the difference.

To be treated as a hedger, for size limits, you have to demonstrate to your broker that you are in the trade.  Being called a "hedge fund" is not relevant.