Introduction to Silver Futures Trading

After gold, silver is the most invested precious metal.1 Silver has been used as a currency, jewelry, and long-term investment option for centuries. Various silver-based instruments are now available for trading and investing. These include silver futures, silver options, silver ETFs, or over-the-counter products like silver-based mutual funds foreign exchange market today. This article explains how to trade silver futures - how it works, how investors typically use it, and what you need to know before trading.



The Basics

To understand the basics of silver futures trading, let's start with the example of a silver medal maker who was awarded a contract to provide silver medals for an upcoming sporting event. The manufacturer needs 1,000 ounces of silver in six months to produce the required medals on time. He reviews silver prices and finds that silver is trading at $ 10 an ounce today. The manufacturer may not be able to purchase the silver today due to lack of cash, secure storage issues, or other reasons. Of course, he is concerned about a possible increase in silver prices in the next six months forex trading platforms in India. He wants to protect himself against future price increases and peg the purchase price at around $ 10. The manufacturer may enter into a silver futures contract to solve some of his problems. In six months, the contract could expire when the manufacturer would be guaranteed the right to buy silver at $ 10.1 an ounce. Buying (long) a futures contract allows you to fix the future price.

Trade Real-World Silver Futures

While the above example provides a good demonstration of silver futures trading and the use of hedging, trading works a bit differently in the real world. Silver futures are available to trade on various exchanges around the world with standard specifications about foreign exchange market. Let's take a look at how silver trading works on the Comex Exchange (part of the Chicago Mercantile Exchange (CME) group).2 The Comex Exchange offers a standard silver futures contract to trade in three variations, named after the number of troy ounces of silver (1 troy ounce equals 31.1 grams). full (5,000 troy ounces of silver) 3 E-Mini (2,500 troy ounces) 4 micro (1,000 troy ounces) 5 A quote of $ 15.7 for a full silver contract (worth 5,000 troy ounces) is the total value of the contract of 15.7 x 5,000 = $ 78,500.



Money Futures Settlement Process

Most traders (especially short-term traders) generally don't care about delivery mechanics. You adjust your long/short positions in silver futures contracts in time before expiration and benefit from a cash settlement. Those who hold their charges to maturity will receive or deliver (depending on the buyer or seller) 5,000 ounces. COMEX money guarantee for a full-size silver futures contract based on your long or short positions. An order authorizes its holder to hold equivalent silver bars in designated deposits.

Role of the Stock Market in the Trading of Silver Futures

Silver futures trading has been around for centuries.10 In its simplest form, two people agree on a future price of silver and promise to trade on an expiration date. However, futures trading is not standard. Therefore, it is associated with a default risk of the counterparty best broker in India for forex. Trading silver futures on an exchange offers the following advantages: Standardization of trading products (such as full-size, e-mini, or micro silver contract size designations) A safe and regulated marketplace for buyer-seller interaction Protection against counterparty risk An efficient pricing mechanism A future date List of data with a 60-month date that allows the creation of a forward price curve and therefore efficient pricing Differences Entry of short positions for hedging and trading purposes Trading times long enough (up to 22 hours for silver futures), that they provide ample trading opportunities.

Factors Affecting Silver Futures Prices

There has been very high volatility in silver prices in recent years, which may have pushed silver beyond the generally perceived limits of safe asset classes12. In 1990, the industrial demand for silver represented about 39% of the total demand. The rest was for investment purposes. Industrial demand currently represents more than half of total demand.13 This increase in industrial demand is the main factor behind the higher volatility in silver prices. A recession or a slowdown in industrial demand would lower silver prices.

Contact us