scfranklin94

It's All About Oil

Don't know why the equation was mis-typed; should read: $500M/($140 x 1,000 barrels) = 3,571 contracts.

How do I know? I work in administration of many different kinds of funds; all the index funds I have seen use zero leverage, unlike the typical trading fund.

It's All About Oil

Old Wizard - typical index players put up 100% of the cost of the underlying future; i.e. let's say an index fund which is mainly held by institutional investors (pension funds and insurance companies) has $500 million in it. The index fund will only buy as many futures as $500 million allows; i.e. $500,000,000/($140*100... barrels) = 3,571 contracts that the fund would buy. That way the fund can't lose what isn't already in the fund. The Nymex only requires approx $12k per contract in margin, or approx $42 million. Raising the margins will have no effect on the index funds.

The speculators who are leveraged are predominately the short players in this market; raising the margin requirements will more likely force prices to go up, not down.