How to Trade Silver Online
Silver, like gold and platinum, belongs to the group of commodities known as precious metals, and has been highly sought after by humans for centuries. As well as being used for making jewellery, silver has a number of industrial uses, including in the manufacturing of batteries and semi-conductors
Because of its versatility and rarity, silver is also one of the most popular commodities amongst traders and investors. But why trade silver? And what are the different ways of trading and investing in silver? In this article, we will answer these questions and demonstrate how to trade silver online with Admirals!
Table of Contents
Why Trade Silver?
As mentioned above, silver is a highly sought after commodity, which has many practical industrial uses besides its popularity as jewellery. These qualities make it a desirable asset to trade, due to its popularity and, therefore, liquidity.
There are several specific answers to the question ‘why trade silver?’, some of which we will briefly look at below.
Hedging Against Inflation
Inflation erodes the purchasing power of money over time. Therefore, when inflation is rising, as it is currently, many investors look for investments which will offset the effect of inflation and protect the value of their capital.
This is called hedging against inflation and investing in silver is a popular method of achieving this as, in an inflationary environment, silver tends to hold or increase in value.
Safe Haven Asset
Like gold, silver has earned the status amongst investors as a safe haven asset.
As well as being viewed as an effective hedge against inflation, silver also tends to maintain or increase in valueduring times of economic uncertainty, which means that many choose to invest in silver during periods of economic turbulence.
One of the best risk management strategies is building a diversified portfolio spanning different asset classes. Commodities, such as silver, can provide valuable diversification as their price is influenced by different factors to other assets.
In general, the prices of commodities can be quite volatile. Whilst gold is undoubtedly the more popular commodity, silver’s price tends to be much more volatile.
Increased volatility causes an increase in risk; however, it also provides the savvy trader with more opportunities to profit from both rising and falling prices. This makes trading silver popular amongst traders whose trading strategies require high levels of volatility.
Now we know why someone may trade or invest in silver, how can you trade or invest in silver?
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How to Trade or Invest in Silver
For those who want to gain exposure to this precious metal, there are a number of different ways to trade or invest in silver.
We can separate these into two different categories; investing in silver involves buying physical silver bullion or purchasing shares in a company which operates in the silver industry. In order to trade silver, traders can use derivative products to speculate on its price.
In the following sections we will highlight a few of the different options available for trading and investing in silver, together with their advantages and disadvantages.
Buy Silver Bullion
The traditional and most direct way of investing in silver involves buying the physical commodity, in the form of silver bullion or coins.
Whilst buying silver bullion may seem straightforward, it presents a number of logistical issues for investors. Investors firstly need the full amount of money at their disposal to buy silver bullion. Then, once they have taken ownership of the physical asset, they must have a place to safely store it and may need to pay to insure it.
Furthermore, when it comes to liquidating the asset, investors will need to find a counterparty who is willing to purchase the silver from them at market value.
The next method of investing in silver is to buy shares in silver stocks.
With silver stocks, unlike buying silver bullion, investors don’t need to worry about any of the logistical aspects of taking ownership of the physical asset. Instead, investors can buy shares in companies directly involved in the industry, such as silver mining stocks.
Such silver stocks tend to correlate positively with the price of silver; in other words, when the price of silver increases, so too do the share prices of silver stocks.
However, when investing in silver stocks, there are many other factors to consider other than the outlook of silver prices, as this is not the only thing that will determine share price. You will need to analyse the fundamentals of the company itself and determine its future prospects within the silver industry.
Silver Exchange-Traded Funds (ETFs) are another method of investing in silver. ETFs are publicly listed funds, which are designed to track the price of an underlying asset, index or sector, by using investors’ money to purchase and hold a basket of assets.
Silver ETFs are designed to track the price of silver and the majority do so by buying and holding physical silver bullion or silver futures contracts (which we will look at shortly). However, some silver ETFs may also hold silver stocks.
Consequently, many silver ETFs provide investors with an opportunity to invest in physical silver, without actually taking ownership of the commodity themselves.
So, we have now looked at three ways to invest in silver, but what about those who want to trade silver?
Silver futures contracts represent a binding agreement between two parties agreeing to exchange silver at a specified date in the future for a pre-determined and fixed price. Therefore, traders can speculate on the price of silver by buying and selling silver futures contracts.
However, because silver futures have an expiry date, they are not appropriate for longer-term speculation. Their expiry date can also have an influence on the market value of the contracts, as they approach maturity.
Furthermore, silver futures contracts are standardised, meaning that traders are obligated to trade a certain amount of silver per contract. There are three variations of silver futures contracts available on the Comex Exchange, a full contract (5,000 troy ounces), an E-mini contract (2,500 troy ounces) and a micro contract (1,000 troy ounces).
At the time of writing, silver prices are around $25 per ounce, meaning that even the smallest silver futures contract would be worth roughly $25,000. Although futures contracts can be traded on margin, some traders may prefer to trade with smaller position sizes as part of their approach to risk management.
Like futures contracts, Contracts for Difference (CFDs) allow traders to speculate on both rising and falling silver prices without ever having to take ownership of the physical asset, as well as benefitting from the use of leverage.
Unlike futures, with silver CFDs traders have more flexibility over contract sizes, which can be personalised according to the individual trader’s risk management approach.
Furthermore, silver CFDs do not have an expiry date and so positions can be held open for longer. However, it should be noted that CFD positions are subject to swap fees if left open overnight.
What Affects Price of Silver?
In order to trade silver effectively, it is important to understand what factors drive its price. So, what affects the price of silver?
Use in Industry: Due to its properties of being highly conductive and malleable, there is a fairly constant industrial demand for silver in the manufacturing of a variety of goods. Therefore, any changes in the levels of global production could affect the price of silver through an increase or decrease in demand.
Inflation: As silver is used by many investors to hedge against inflation, during periods of higher inflation, demand for silver can increase as more people funnel their money into the precious metal. This increase in demand can drive up the price of silver.
Health of the Economy: During an economic downturn, investors often flock to safe haven assets to protect their money from unpredictable market volatility. This can increase the demand for silver and consequently raise its price.
Below, in the highlighted segment of the chart, we can see the price of silver soaring as the global economy sank during the pandemic in 2020.
Whilst the opposite can be true, the reality is slightly more complicated. Because it is used in industry and to manufacture jewellery, when the economy flourishes, demand for silver can also rise, as people consume more, which can lead to an increase in price.
US Dollar: Like all commodities, silver is priced in US dollars. Therefore, when the US dollar is weak, silver becomes comparatively cheaper to purchase, which causes an increase in demand and can cause the price to increase. Conversely, a stronger dollar can result in the price of silver falling.
Demand for Other Metals: Silver is usually found combined with other substances and, consequently, is most commonly discovered whilst mining for other metals. Therefore, an increase in demand for other metals, such as copper, can cause an increase in the supply of silver, which may cause a drop in prices if demand remains constant.
How to Trade Silver Online with Admirals
With a Trade.MT5 account from Admirals, you can trade silver CFDs as well as CFDs on a number of other commodities, including gold. You can follow the steps below in order to learn how to trade silver online with Admirals:
- Sign up with Admirals and register for a Trade.MT5 account
- Download, open and log in to the MetaTrader 5 trading platform
- Press Control + U to bring up the Symbols window where you can search for silver CFDs. Once located, click ‘Show Symbol’ to add it to Market Watch
- Head to the Market Watch window on the left hand side of the screen and locate the symbol for Silver, right click on it and select Chart Window to open a price chart
- In order to place a silver trade, click ‘New Order’ at the top of the screen to open an order window. Here, you can enter you desired order volume and set a stop loss and take profit
Silver Trading FAQ
What Is the Highest Price Silver Has Ever Been?
Silver prices hit an all-time high in US dollars in January 1980, when it reached $49.45 per ounce
What Is the Ticker Symbol for Silver?
In MetaTrader 5, spot silver CFDs are traded under the ticker symbol SILVER. However, on some other trading platforms, the ticket symbol for silver is sometimes listed under XAG/USD.
Where Does Silver Come From?
In 2020, 86% of the global supply of silver was produced in ten countries: Mexico, Peru, China, Russia, Australia, Chile, Poland, Bolivia, Argentina and the US. Between them, Mexico, Peru and China accounted for just under 50% of total global silver mined in 2020.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.