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Margin Requirements and Frost #3: What to Expect

Updated: Jul 27, 2021

Today, the #coffeemarket (#Arabica) rallied +26c at the highs today to 215.20 in September based on #margin increases and renewed #Frost Risk. These are numbers on the terminal and daily changes that we haven't seen since the 2014 #drought.

Helping to drive prices higher today was the fact that the #ICE exchange raised #MarginRequirements on Friday from $4050 to $7500 / lot. This is a 2/3 increase that #Traders had 2 days over the weekend to come up with. Those that are not able to come up with the increased margin requirements have their positions liquidated.

Let's put some numbers on that. If we use the numbers from last week's post, if you are a tradehouse with a 1,000 lots hedged that's 4.05 million dollars of initial margin, that just increased to 7.5 million dollars. That's a $3.45 million dollar outlay on top of the $17.65 million dollars lost in price action over the last 5 trading days (207c - 160 = 47c, 47c x 375 * 1,000 lots = 17.65 million).