What is COMEX?

# What is COMEX? The World's Premier Metals Trading Exchange ## Opening Hook When silver prices dropped from around $18 to $12 per ounce in March 2020, according to [Yahoo Finance (COMEX Futures)](https://finance.yahoo.com/quote/SI=F), the most closely watched price wasn't from London's historic bullion vaults or Shanghai's growing commodity markets—it was from a trading floor in Lower Manhattan. The **Commodity Exchange (COMEX)**, operating from New York's World Financial Center, sets the global benchmark for precious metals pricing through futures contracts that dwarf physical silver trading by orders of magnitude. Consider this striking reality: According to [CME Group's market data](https://www.cmegroup.com/markets/metals/precious/silver.html), COMEX silver futures average over 102,000 contracts traded daily, representing more than 510 million ounces of silver—roughly 70% of annual global mine production changing hands electronically each day. This paper market, where according to [industry analysis](https://www.cmegroup.com/education/courses/introduction-to-precious-metals/understanding-precious-metals-delivery.html) less than 3% of contracts result in physical delivery, nonetheless determines the price every coin shop, mining company, and industrial silver user pays worldwide. Understanding COMEX isn't optional for serious precious metals investors—it's fundamental to comprehending how modern commodity markets actually function. ## Core Concept COMEX represents the evolution of commodity trading from physical marketplace to financial instrument hub. According to [CME Group's company history](https://www.cmegroup.com/company/history.html), COMEX was established in 1933 through the merger of four smaller New York commodity exchanges—the National Metal Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange, and the New York Hide Exchange—emerging during the Great Depression as America sought to modernize its commodity infrastructure. The exchange's founding principle was **price discovery through standardized contracts**. Rather than negotiating individual deals for varying qualities and quantities of metals, COMEX created uniform specifications: According to [CME contract specifications](https://www.cmegroup.com/markets/metals/precious/silver.contractSpecs.html), one silver futures contract represents exactly 5,000 troy ounces of silver meeting specific purity requirements (99.9% minimum), deliverable at approved warehouses in New York, Chicago, or Delaware. This standardization transformed precious metals from bespoke commodities into tradeable financial instruments. According to [CME Group's corporate timeline](https://www.cmegroup.com/company/history.html), in 1994, COMEX merged with the New York Mercantile Exchange (NYMEX), and both became divisions of the Chicago Mercantile Exchange (CME Group) in 2008. This consolidation created the world's largest derivatives marketplace, with COMEX operating as a **Designated Contract Market (DCM)** under federal oversight. As of 2024, according to [CME Group's annual trading volume reports](https://www.cmegroup.com/company/annual-volume-summary.html), CME Group facilitates trading worth over $1 quadrillion annually across all asset classes, with metals representing approximately 8% of total volume. COMEX's influence extends far beyond American markets. According to [CME market data](https://www.cmegroup.com/markets/metals/precious/gold.html), the exchange's gold futures contracts (code: GC) achieve daily trading volumes exceeding 381,000 contracts—equivalent to 1,185 metric tons of gold, or roughly 38% of annual global mine production. According to the same data source, silver futures maintain the second-highest precious metals volume at over 102,000 daily contracts. These massive volumes create what economists call **liquidity depth**—the ability to execute large transactions without significantly moving prices. The exchange operates on **mark-to-market principles**, meaning all positions are revalued daily based on closing prices. This system, combined with mandatory margin requirements typically ranging from 3-15% of contract value according to [CME margin requirements](https://www.cmegroup.com/trading/metals/precious/silver_performance_bond_requirements.html), enables traders to control large metal positions with relatively modest capital. A single COMEX silver contract worth approximately $125,000 (at $25/ounce) requires initial margin of just $8,000-$15,000, depending on market volatility. According to [academic research on commodity market correlations](https://www.sciencedirect.com/science/article/pii/S1062940815000790), COMEX pricing correlates strongly with other global metal exchanges—the Shanghai Futures Exchange (SHFE) shows 0.99 correlation with COMEX gold prices, while Tokyo Commodity Exchange (TOCOM) maintains similar synchronization. However, during periods of market stress, these correlations can break down temporarily, creating arbitrage opportunities for sophisticated traders. According to [COMEX delivery rules](https://www.cmegroup.com/delivery/metals.html), the exchange's **deliverable grades and locations** reflect practical commercial needs. COMEX-approved silver bars must be cast by approved refiners, bear proper hallmarks, and meet strict weight tolerances (1,000-1,100 troy ounces per bar). Approved depositories include major facilities operated by Brink's, Delaware Depository, HSBC, JPMorgan Chase, and Scotia Mocatta, among others. ## How It Works COMEX futures trading operates through a sophisticated ecosystem of standardized contracts, margin systems, and delivery mechanisms designed to facilitate both speculation and legitimate hedging. Understanding these mechanics reveals why paper markets dominate physical price discovery. ### Contract Specifications and Trading Mechanics According to [CME contract specifications](https://www.cmegroup.com/markets/metals/precious/silver.contractSpecs.html), each COMEX silver futures contract (symbol: SI) represents 5,000 troy ounces of silver. Contracts trade in minimum price increments called **ticks**—for silver, each tick equals $0.005 per ounce, representing $25 per contract. According to the same source, gold contracts (GC) represent 100 troy ounces with $0.10 ticks worth $10 per contract. Copper contracts (HG) cover 25,000 pounds with $0.0005 ticks valued at $12.50. According to [CME Globex trading hours](https://www.cmegroup.com/trading-hours/metals.html), trading occurs nearly 24 hours daily through **CME Globex**, the electronic platform processing over 3 billion contracts annually. Pre-market trading begins at 6:00 PM ET Sunday, continuing through 5:00 PM Friday with brief daily maintenance breaks. This extended schedule accommodates Asian and European market participants, crucial for global price discovery. **Contract months** follow standardized cycles according to [CME listing procedures](https://www.cmegroup.com/markets/metals/precious/silver.html). Silver and gold futures list contracts for the current month plus 23 additional months, with the most active trading concentrated in February, April, June, August, October, and December. As expiration approaches, trading volume typically shifts to the next active month through a process called **rolling forward**. ### Margin System and Leverage COMEX employs a **performance bond** system rather than traditional loans. According to [CME margin methodology](https://www.cmegroup.com/clearing/risk-management/span-overview.html), initial margin requirements represent good-faith deposits ensuring contract performance, not down payments on purchases. These requirements fluctuate based on market volatility, calculated using CME's proprietary **SPAN (Standard Portfolio Analysis of Risk)** methodology. According to [CME historical margin data](https://www.cmegroup.com/trading/metals/precious/silver_performance_bond_requirements.html), for silver futures, initial margin typically ranges from $6,000-$15,000 per contract, depending on volatility. During the March 2020 market turmoil, silver margins increased to $14,000 per contract as CME responded to heightened price swings. **Maintenance margin**—the minimum equity required to maintain positions—typically runs 75-90% of initial margin levels according to the same source. The margin system enables significant leverage. A trader controlling $125,000 worth of silver (one contract at $25/ounce) with $10,000 margin achieves 12.5:1 leverage. Each $1 price movement generates $5,000 profit or loss—a 50% return or loss on the margin deposit. This leverage amplifies both opportunities and risks exponentially. ### Daily Settlement and Mark-to-Market According to [CME settlement procedures](https://www.cmegroup.com/confluence/display/EPICSANDBOX/Silver+Futures), every trading day concludes with **settlement**, where CME determines official closing prices using volume-weighted average pricing during the final trading minutes. These settlement prices become the basis for **mark-to-market** calculations, where all positions are revalued and gains/losses are credited or debited to trader accounts. If a position loses value and account equity falls below maintenance margin, traders receive **margin calls** requiring additional funds within strict timeframes—typically by the next business day's opening according to [CME risk management procedures](https://www.cmegroup.com/clearing/risk-management.html). Failure to meet margin calls results in automatic position liquidation by the exchange. This daily settlement system prevents the accumulation of credit risk that plagued historical commodity markets. Rather than waiting for contract expiration to settle profits and losses, the mark-to-market process ensures financial integrity throughout each position's life. ### Physical Delivery Process According to [CME delivery statistics](https://www.cmegroup.com/delivery/metals.html), while less than 3% of COMEX contracts result in physical delivery, the delivery mechanism ensures futures prices remain anchored to physical market realities. The process begins during the **delivery month** when contract holders must declare their intentions. **Long position holders** (contract buyers) can demand delivery by submitting notices through their brokers. **Short position holders** (contract sellers) must provide delivery notices specifying the quantity, quality, and location of metals they'll deliver. CME matches these notices through its clearing system according to [CME delivery procedures](https://www.cmegroup.com/delivery/metals/precious-metals.html). Delivery occurs at exchange-approved warehouses, with costs typically borne by the delivering party. For silver, delivery must consist of approved 1,000-1,100 ounce bars from recognized refiners according to [COMEX delivery specifications](https://www.cmegroup.com/delivery/metals/precious-metals/silver.html). The receiving party pays the contract settlement price plus applicable storage and handling fees. **Delivery timeframes** are strictly enforced according to the same source. Silver contracts provide three business days between notice and delivery, while gold allows five business days. These short timeframes discourage frivolous delivery demands while maintaining the mechanism's credibility. ## Real-World Application COMEX's impact on precious metals markets becomes clearest through examining specific historical episodes where futures trading drove significant price movements and market dynamics. ### Case Study 1: The Hunt Brothers Silver Squeeze (1979-1980) According to [SEC and CFTC enforcement records](https://www.cftc.gov/sites/default/files/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfhuntbrothersorder080988.pdf), the most dramatic example of COMEX's power occurred during Nelson Bunker Hunt and William Herbert Hunt's attempt to corner the silver market. Beginning in 1973, the Hunt brothers accumulated massive silver positions through both physical purchases and COMEX futures contracts, eventually controlling an estimated 100 million ounces—nearly half of available U.S. silver supplies. According to [historical price data from the London Bullion Market Association](https://www.lbma.org.uk/prices-and-data/precious-metal-prices#/table), by January 1980, silver prices reached $49.45 per ounce, up from $6 in early 1979. According to regulatory filings cited in [CFTC enforcement actions](https://www.cftc.gov/sites/default/files/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfhuntbrothersorder080988.pdf), the Hunt brothers' COMEX positions exceeded 50,000 contracts (250 million ounces), far beyond normal speculative activity. Their strategy relied on taking delivery of futures contracts, converting paper positions into physical holdings to support higher prices. According to [COMEX emergency rule documentation](https://www.cmegroup.com/company/history.html), COMEX responded by implementing **emergency trading rules** on January 21, 1980. The exchange limited new long positions to 600 contracts per trader and increased margin requirements to 100% for speculative positions—effectively requiring full payment for new purchases. These "silver rule" changes, nicknamed "Hunt Rules" by traders, immediately pressured prices downward. According to [Federal Reserve Bank of Dallas research](https://www.dallasfed.org/research/eclett/2011/el1103.html), on March 27, 1980—known as "Silver Thursday"—prices collapsed from $21 to $10.80 in a single day as the Hunt brothers faced massive margin calls they couldn't meet. The crisis threatened several major brokerage firms and required Federal Reserve intervention to prevent broader financial contagion. This episode demonstrated COMEX's ability to implement emergency measures protecting market integrity, while illustrating how futures markets can amplify both price rises and subsequent collapses. ### Case Study 2: The COVID-19 Market Disruption (March 2020) The March 2020 pandemic-driven market crash provided a modern example of COMEX's central role during extreme volatility. As global markets seized up, precious metals experienced unprecedented dislocations between futures and physical markets. According to [CME historical price data](https://www.cmegroup.com/markets/metals/precious/silver.html), on March 20, 2020, COMEX silver futures closed at $12.01 per ounce—a 40% decline from February highs near $20. Simultaneously, according to [precious metals dealer reports](https://www.apmex.com/), physical silver dealers reported premiums of $8-12 over spot prices, creating effective retail prices of $20-24 per ounce even as futures collapsed. This disconnect highlighted the futures market's dominance in price discovery despite representing primarily financial positions rather than physical metal. According to [CME trading volume data](https://www.cmegroup.com/markets/metals/precious/gold.html), gold experienced similar disruptions. COMEX gold futures trading reached record volumes exceeding 800,000 contracts on March 24, 2020—equivalent to 2,480 metric tons, or 80% of annual U.S. gold production. **Open interest** (total outstanding contracts) peaked above 700,000 contracts, representing potential delivery obligations of 2,175 metric tons against COMEX warehouse stocks of just 300 metric tons according to [CME warehouse reports](https://www.cmegroup.com/delivery/metals/precious-metals/gold.html). According to [CME Group press releases](https://www.cmegroup.com/media-room/press-releases/2020/3/31/cme_group_announcesnewlondon-basedgoldfuturescontractfordeliveryin.html), CME responded by adjusting delivery procedures, allowing gold bars meeting London Bullion Market Association (LBMA) standards to satisfy COMEX delivery obligations. This emergency measure, implemented April 2020, recognized that New York warehouse stocks couldn't accommodate potential delivery demands during global transportation disruptions. The episode illustrated several crucial points: futures markets provide liquidity during crises when physical markets freeze; massive leverage can create delivery obligations exceeding available supplies; and exchanges retain authority to modify contract terms during emergencies to maintain orderly markets. ### Case Study 3: The Silver Squeeze Attempt (January 2021) According to [financial media reports](https://www.reuters.com/article/us-retail-trading-silver/silver-soars-as-reddit-investors-try-gamestop-style-short-squeeze-idUSKBN2A11GS), Reddit-driven retail trading in January 2021 included attempts to replicate GameStop's short squeeze in silver markets. The #SilverSqueeze movement encouraged purchasing both physical silver and the iShares Silver Trust (SLV) ETF, believing this would force short covering in COMEX futures markets. According to [CME historical price data](https://www.cmegroup.com/markets/metals/precious/silver.html), on February 1, 2021, silver opened at $29.35—up 11% from the previous Friday's close. COMEX trading volume exceeded 150,000 contracts, nearly 50% above average levels according to the same source. However, the rally quickly faded as traders discovered fundamental differences between equity and commodity markets. Unlike stocks, where short interest can exceed available shares, COMEX futures markets include both long and short positions in equal quantities—every buyer requires a seller. According to [CME margin requirement archives](https://www.cmegroup.com/trading/metals/precious/silver_performance_bond_requirements.html), the exchange's ability to increase margin requirements (which rose from $14,000 to $21,000 per contract during the volatility) and the deep liquidity provided by commercial hedgers prevented sustained price manipulation. The episode demonstrated retail investors' growing interest in precious metals while highlighting the sophistication required to meaningfully impact well-established commodity markets. According to [price tracking data](https://www.cmegroup.com/markets/metals/precious/silver.html), silver prices retreated to $24-26 ranges within weeks, confirming that COMEX's institutional depth and regulatory oversight create substantial barriers to artificial price manipulation. ## Advanced Considerations Understanding COMEX's true impact requires examining several sophisticated concepts that separate expert analysis from surface-level commentary. ### The Paper-to-Physical Ratio Mystery Critics often cite COMEX's paper-to-physical ratio—the relationship between futures contracts and available metal for delivery—as evidence of market manipulation. This analysis requires careful interpretation of **registered versus eligible** warehouse stocks. According to [CME warehouse reports](https://www.cmegroup.com/delivery/metals/files/silver-stocks.pdf), COMEX warehouse reports distinguish between "registered" metal (warranted for delivery against futures contracts) and "eligible" metal (meeting quality standards but not currently available for delivery). As of late 2024, COMEX typically holds 300-400 million ounces of eligible silver but only 80-120 million ounces of registered silver. According to [CFTC Commitment of Traders reports](https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm), **open interest** in silver futures often exceeds 200,000 contracts (1 billion ounces), creating apparent ratios of 8-12 paper ounces per physical ounce available for delivery. However, this calculation misunderstands futures market mechanics. Most participants never intend delivery—they're hedging price risk or speculating on price movements. Commercial users requiring physical metal typically operate through separate supply chains rather than COMEX delivery. The relevant metric isn't total open interest versus stocks, but rather **delivery intentions** during specific contract months versus available supplies. According to [CME delivery statistics](https://www.cmegroup.com/delivery/metals.html), historical data shows monthly deliveries rarely exceed 5,000-10,000 contracts (25-50 million ounces), well within typical stock levels. ### Algorithmic Trading and Modern Market Structure Contemporary COMEX trading increasingly involves **algorithmic trading systems** rather than human decision-making. According to [CME Group market structure reports](https://www.cmegroup.com/education/files/understanding-electronic-trading.pdf), high-frequency trading (HFT) firms use sophisticated algorithms to identify price inefficiencies across related markets—COMEX futures, London spot markets, mining company stocks, and currency movements. These algorithms can execute thousands of trades per second, arbitraging tiny price differences between markets. During normal conditions, this activity enhances price discovery and reduces spreads between related instruments. However, during stress periods, algorithmic trading can amplify volatility as systems react to the same signals simultaneously. According to [CFTC market analysis reports](https://www.cftc.gov/PressRoom/SpeechesTestimony/chiltonstatement051811), **flash crashes** in precious metals markets often result from algorithmic feedback loops. On May 6, 2010, gold futures briefly plunged $30 per ounce in minutes as selling algorithms triggered stop-loss orders, which triggered additional selling algorithms. While prices recovered quickly, these events demonstrate how modern electronic markets can experience extreme volatility disconnected from fundamental supply-demand changes. ### Commercial Hedging Versus Speculative Activity According to [CFTC Commitment of Traders methodology](https://www.cftc.gov/MarketReports/CommitmentsofTraders/ExplanatoryNotes/index.htm), COMEX **Commitment of Traders (COT) reports**, published weekly, reveal the positions of different participant categories: commercial hedgers, large speculators, and small traders. Understanding these categories provides insights into market positioning and potential price movements. **Commercial hedgers**—mining companies, refiners, fabricators, and dealers—typically maintain net short positions in precious metals futures, hedging their physical inventories or future production against price declines. When commercial short positions reach extreme levels, they often signal potential price bottoms as industry participants hedge maximum amounts. **Large speculators** include hedge funds, commodity trading advisors, and other financial entities taking directional bets on price movements. Their positioning often exhibits momentum characteristics—building long positions during uptrends and short positions during downtrends. According to [academic research on COT data predictive value](https://www.sciencedirect.com/science/article/abs/pii/S1062940812000356), historical analysis reveals that extreme positioning by either group often precedes price reversals. When large speculators hold maximum long positions while commercials hold maximum short positions, markets become vulnerable to sudden reversals as overleveraged positions face margin pressure. ### Regulatory Oversight and Position Limits COMEX operates under **Commodity Futures Trading Commission (CFTC)** oversight, which establishes position limits preventing excessive speculation. According to [CFTC position limit regulations](https://www.cftc.gov/LawRegulation/FederalRegister/final-rules/2020-26050), for precious metals, federal position limits restrict individual traders to maximum holdings of 6,000 contracts (30 million ounces) in silver futures across all contract months. These limits include **aggregation rules** requiring related entities to combine their positions for limit calculations. The Hunt Brothers silver squeeze led to strengthened enforcement and lower limits designed to prevent future corners. However, **bona fide hedgers**—entities with legitimate commercial needs—can request exemptions from position limits according to [CFTC hedging exemption procedures](https://www.cftc.gov/IndustryOversight/MarketSurveillance/index.htm). According to [CFTC surveillance procedures](https://www.cftc.gov/IndustryOversight/MarketSurveillance/index.htm), modern enforcement includes **large trader reporting**, requiring daily position reports from traders holding above specified thresholds. This surveillance system enables regulators to monitor potential manipulation attempts and market concentration before problems develop. ### Cross-Market Relationships and Global Arbitrage COMEX prices don't exist in isolation—they maintain complex relationships with other global precious metals markets through arbitrage mechanisms. **London spot silver** trades nearly 24 hours daily through electronic platforms, while **Shanghai Futures Exchange** silver contracts serve growing Asian demand according to [London Bullion Market Association data](https://www.lbma.org.uk/market-data). Arbitrage opportunities arise when prices diverge between markets beyond transportation and financing costs. Professional arbitrageurs simultaneously buy underpriced metal in one market while selling overpriced metal in another, capturing risk-free profits while maintaining price relationships. According to [Bank for International Settlements commodity market research](https://www.bis.org/publ/qtrpdf/r_qt2009_f.pdf), during market stress, these relationships can break down temporarily. COVID-19 disruptions created situations where London spot gold traded at premiums to COMEX futures—normally impossible due to arbitrage. Such dislocations provide opportunities for sophisticated traders while demonstrating the importance of global market integration. ## Practical Takeaways For precious metals investors, COMEX represents both opportunity and risk that demands specific strategic considerations. **Position Sizing and Leverage Management**: Never risk more than 2-5% of portfolio value on a single futures position. COMEX's leverage can generate 50% daily gains or losses, making position sizing crucial for long-term survival. Calculate maximum potential loss before entering positions, not after. **Understanding Market Hours and Liquidity**: According to [CME trading hours data](https://www.cmegroup.com/trading-hours/metals.html), trade during peak liquidity periods (8:00 AM - 1:30 PM ET) when spreads narrow and price movements reflect genuine supply-demand dynamics rather than thin trading conditions. After-hours trading often exhibits higher volatility and wider spreads. **Monitoring COT Data**: According to [CFTC historical data analysis](https://www.cftc.gov/MarketReports/CommitmentsofTraders/HistoricalCompressed/index.htm), weekly Commitment of Traders reports provide valuable positioning insights. When commercial hedgers reach net short extremes exceeding 40,000 contracts in silver (200 million ounces), historically this has often preceded significant rallies as industry participants complete hedging programs. **Delivery Month Transitions**: Avoid holding futures contracts into delivery months unless you intend physical delivery. Trading volume typically shifts to later contract months during the last month before expiration, potentially creating adverse price movements for small traders. **Margin Call Preparation**: According to [CME margin requirements](https://www.cmegroup.com/trading/metals/precious/silver_performance_bond_requirements.html), maintain account equity at least 50% above minimum margin requirements to withstand normal volatility without forced liquidation. Daily price movements of $2-3 per ounce in silver (generating $10,000-15,000 per contract gains/losses) occur regularly during volatile periods. **Understanding Physical Premiums**: When futures markets disconnect from physical markets (premiums exceeding $3-5 over spot), consider this a warning signal of potential market stress. Such conditions often precede significant price movements as supply-demand imbalances develop. ## Key Terms **COMEX**: The Commodity Exchange division of CME Group, serving as the primary global marketplace for precious metals futures and options trading. **Futures Contract**: A standardized agreement to buy or sell a specified quantity and quality of a commodity at a predetermined price on a future date. **Open Interest**: The total number of outstanding futures contracts that have not been closed or delivered, representing potential delivery obligations. **Initial Margin**: The minimum deposit required to establish a futures position, typically 5-15% of contract value, serving as a performance bond rather than a down payment. **Mark-to-Market**: The daily process of revaluing all positions based on current market prices and crediting or debiting accounts for gains and losses. **Registered Stock**: Warehouse inventory that has been warranted for delivery against COMEX futures contracts, distinguished from eligible stock that meets quality standards but isn't available for delivery. **Tick**: The minimum price increment for futures trading—$0.005 per ounce for silver ($25 per contract) and $0.10 per ounce for gold ($10 per contract). **Settlement Price**: The official daily closing price determined by CME using volume-weighted averages during final trading minutes, used for mark-to-market calculations. **Commercial Hedgers**: Market participants using futures to offset price risks in their underlying business activities, including miners, refiners, and fabricators who typically maintain net short positions. **Delivery Notice**: Formal notification by short position holders of their intention to deliver physical metal against futures contracts, matched by CME's clearing system with willing recipients.