How To Trade | Ways To Trade Silver

Formerly coined for use as money, today, besides its several other applications

, plays an essential role in generating money for market makers. Even today it shares the exact same words as money in at least 14 different languages. The shiny grayish-white metal of silver has always been held in high esteem for its favorable properties such as reflectivity, durability, malleability, ductility and conductance. For that reason, it has tremendous practical application and is commonly used in cookware, jewelry, industrial and medical purposes. Moreover, like gold, silver is also an actively traded commodity in financial markets where an investor can benefit from its price movement. Though commodity trading is usually high-gainhigh-risk investment but that should not scare investors away from considering silver investments as part of their portfolios. Additionally, there are other ways to trade silver in case the trader does not want direct exposure to risks of a commodities contract. This article underlines the most common ways a trader can trade silver.

Futures/Options

Perhaps the most conventional way of trading silver is to trade its futures or options. However, these being characterized as high-risk investments, a trader will need to meet the special account requirements (usu. capital) as defined by the regulators and the brokerage firm. Silver futures are contracts in which you pay for the right to purchase a certain amount of silver at a specified date in future, for a fixed price. Likewise, silver options are contracts in which you pay for the right but are not obligated to purchase a certain amount of silver at a specified date in future, for an option premium. Should the price of silver increase before delivery date, the value of these contracts also increases. Besides trading futures or options opens doors to a number of trading strategies that one can consider to benefit from the price action. However, because these contracts can be purchased for far less than the actual price in the contract, the brokerage will require you to have a minimum reserve balance to cover potential losses.

Exchange Traded Funds

ETFs are a great way of investing in silver while simultaneously diversifying your exposure to various silver-producing companies without the risk of commodities contract. There are several ETFs, for e.g. SLV, that track the daily performance of silver futures.Moreover, ETFs are generally easier to trade than other investment instruments and can be bought and sold effortlessly, like a typical stock.

Stocks

Undoubtedly, the simplest way to trade silver is to invest in publicly traded silver stocks. These stocks are generally companies that are directly or indirectly involved in silver mining or predominantly involved with silver. Further, being stocks they are easy to trade, easy to monitor and the trader is not needed to fulfill any special account requirements as in the case of futures and options trading.

Irrespective of how you decide to trade silver, bear in mind to watch gold prices as the two have a strong correlation amongst themselves. That is to say, if gold prices rise then silver will follow, however, should gold price decline then silver will follow suit. Another, benefit of trading silver (or gold) is that it can be used as hedge in case of any inflationary or economic concerns looming over financial markets. Last year (2011) when the markets were beaten down by unstable economic conditions in Europe, silver reached its all time high of $49.76/ozt in late April. Further, its value is far less than that of gold or other precious metals therefore making it much more affordable to trade. Having said that, please be advised that silver is one of the most volatile commodities and thereby can have violent price swing. One should always research and analyze silver both fundamentally and technically before entering a trade.

by: Gerald Rickman

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