Thursday, May 1, 2008

Margin Requirements

This is a tad off the general subject of business but yet seems appropriate given the current economic turmoil. Margin, as you know, is the percent of cash needing to be posted to purchase a position in securities like common stock, commodities and such. Currently, one must put up 50% cash to purchase and carry common stock on margin. But, should you prefer to purchase crude oil futures you need only put up 8%. If you don't know why this is important you have not filled your gas tank lately. While politicians talk of suspending gas tax for the summer, no one seems to be calling for an increase in margin requirements. Yet, some of the experts I read are saying that speculation on the price of crude oil has played a role in pushing the price ever higher. We also know that energy cost is then "fueling" (bad pun) the rise in the cost of food and other items. Anyone running a business today is grappling with the effects of the increase in energy cost.

While I am not certain which of the federal agencies sets margin requirements (likely the Fed), I do know a phone call from the White House is all that would be required to deal with this.

1 comment:

Jmartens said...

great point. I had no idea and I imagine most Americans are not aware of this either.