Silver Trading Archives - The Astute Trader

Introduction

Silver trading on forex is becoming increasingly popular among traders looking to diversify their portfolios. Trading silver is one of the premium precious metals available in today’stoday’s commodity market. It carries a lot of positives for traders looking to profit from it in both the long term and the short term. Besides gold and steel, silver is one of the most commonly traded precious metals anywhere in the world.

Today we will explore the top tips for trading silver on the foreign currency market. First, we will explore the basics of both the forex market and silver before we dive into the tips that will help you gain a level footing in the market.

What Is Forex?

The forex market is the largest in the world. It facilitates more trading volume over 24 hours than any other market. That includes cryptocurrency and stocks. Analysts state that over $7.5 trillion worth of transactions takes place over 24 hours.

The volume is much higher than the stock market because the forex market is opened across a span of different time zones. As a result, it will see bumps in activity at the New York open, Asian opening and London.

Knowing what is silver trading at different times of day is essential. If you know when the peak times are and how to trade them effectively, you’ll be operating with some of the same techniques and methods as professional commodity traders.

Although there are a lot of currencies, the main currency pairings focus on seven key ones across the most prominent global economies. The US Dollar is the primary currency that underpins most major currency pairings. The other six currencies are

Australian Dollar (AUD)
Canadian Dollar (CAD)
Euro (EUR)
Great British Pound (GBP)
Japanese Yen (JPY)
New Zealand Dollar (NZD)

The buying and selling of these currencies is the whole forex market in a nutshell. Various factors drive the market, including economic policy, central government policy, and world events—examples such as the outbreak of war or a global recession like what happened in 2008.

However, the currency pair to look out for is XAG/USD if you’re looking at trading silver. For other commodities, such as gold, the currency pair is XAU/USD.

You can apply many forex trading methods when trading silver. If you’re after more in-depth information about specific forex trading methods. You can find more information from Astute Trader blogs, such as

What Is Silver Trading?

Trading silver is the buying and selling of the commodity, whether through physical ownership, companies that manufacture and produce the metal, or through the forex market, as we will discuss today. Over the last few years, silver has experienced periods where it has exploded in price.

Despite being overshadowed by gold, physical silver is used for several things. But what is silver trading for? Some of the primary uses of silver include

Battery Production
Currency
Car Manufacturing
Jewellery
Solar Panel Production
Dental Alloys
Electrical Contacts

The supply and demand for these products drive the price of silver on the forex market. Silver trades take place all over the world daily. However, if you are trading silver as a forex pair, you must also weigh several other variables. We will dive into this in more detail and hopefully give you a better insight into how silver traders make money from trading silver on a global currency market.

#Tip 1 – Understand What Drives The Price

The bullet-pointed list we detailed above indicates some of the industries to look for when considering trading silver. Knowing how to start trading silver doesn’t only include signing up for a broker and purchasing it at a set rate.

Suppose you explore the industries that we listed in the previous section. In that case, any positive performance they post about or any increase in their share price should let you ascertain whether the commodity’s price is due to rise or drop.

Keeping an eye on the news will also help. You can apply this point more generally across a range of assets. For example, trading silver more successfully means knowing what drives the price of silver. Due diligence and promising research on this topic will help you on your journey to trading silver.

Tip #2 – Decide On What Method You Will Use

If we take trading silver as the centre of a brainstorm chart, there are branches you can draw for different trading methods. We have already discussed them, including physical ownership, company shares, etc.

If you are silver trading on the forex market, it’s a much bigger question than just buying for one Dollar and selling for two. There are dozens of different methods you can use when it comes to trading forex. A popular technique that beginner traders use is swing trading. Although our guide goes into much deeper detail regarding this trading method, swing traders will look at a chart, try and buy the price at a low point and sell it at a higher point.

Although it is sometimes considered a type of day trading, swing trading can also occur over a more extended period. Forex day trading silver incorporates other methods.

We aren’t trying to oversimplify the specifics in such a highly complex market, but learning to walk before you can run is critical. If you’re trading outside your full-time job, you want to purchase your asset and not be glued to the charts all day either, professional traders can afford this luxury, but retail traders cannot. We’ll break down a few examples to show you the variety of ways professionals turn trading silver into a profitable venture.

Trading Silver Options

Institutional traders will often take advantage of the facility options trading affords them. Options trading is a form of investing that allows investors to buy and sell contracts on the price of an underlying asset.

When it comes to trading silver, an option allows a trader to purchase the asset at a price they see fit. However, they are not obligated to buy it, which is where the term comes from. They can do so, but there’s no requirement for them to enact it.

It is a type of derivative trading, which means that the value of the option is derived from the price of another asset. Traders can use silver options to hedge against risk, speculate on future prices, or make a profit.

By understanding how options work and what strategies are available, traders can manage risk and return more effectively than in more volatile speculative instruments such as futures trading. However, if you’re just starting in this market, you must learn the basics before diving into a relatively advanced trading method.

Trading Silver Futures

Options trading and futures trading bear some similarities. They are both specialist instruments that traders use. However, futures trading is considered a much riskier method of trading. Trading futures is a high-risk method of trading. You could lose all of your money if you are not careful when using this method. You may also hear it described as margin trading.

Here at The Astute Trader, we leave no stone unturned to help you use free knowledge to understand specialist ways of trading. Our margin page describes futures in far more detail. In a nutshell, you can use leverage to amplify your trade or investment. In forex, different exchanges offer varying rates, but you can usually use leverage sometimes of 100x.

This means if the absolute value of the price of silver increases by 1%, your investment will have doubled in price. It also means if your investment drops by 1%, you could lose all of your money and be liquidated. You can add more funds to your margin account to keep your position active.

However, as you have probably gathered, it is an incredibly risky way of trading silver. Many professional traders know how to buy silvers futures but avoid using leverage. Given how many variables are in play at any given time, you can lose substantial amounts of money quickly.

Knowing where to buy silvers futures is another question that futures traders ask themselves. Depending on the size of the exchange, there may not be the necessary liquidity to execute your trade at the best available price.

Unlike options trading, where you agree to the contract beforehand, a futures trade is executed wherever there is enough liquidity. So while it may not be of much concern if the price of your asset has taken off, if it works the other way, your risk management strategy may not be enough to stop you from haemorrhaging money.

#Tip 3 – Use An Effective Risk Management Strategy

Setting up adequate take profit and stop loss limits is one of the most effective ways of insulating yourself from any potential market downturn. The critical factor in stopping loss and taking profit limits is efficiently managing any negative emotion that may creep in during times of high volatility.

This means you continue to buy the asset’s price if it decreases to have a lower average entry point. For example, if you are trading silver and are confident that the price exceeds your original entry point, you can also use dollar cost averaging. You can apply these tools to other types of trading as well, and having a risk management plan will save you more money in the long run than somebody who doesn’tdoesn’t.

#Tip 4 – Expand Your Knowledge

With the vast resources available via the internet, information on trading silver is far more accessible than a couple of decades ago. You must be able to identify better sources from the limited sources. You can also join online trading communities, seek out literature, or find a mentor who can guide you on how to operate in a volatile and gigantic market.

Even though trading silver is just one aspect of the forex market, it is essential to know what indicators cause the price of major currencies to dip. For example, even if you have no interest in the United States economy or the Dollar, you need to know whether the currency is about to drop in value or is due to experience inflation. This is because it will directly invest any plans you have regarding trading silver.

#Tip 5 – Manage Your Capital Responsibly

Trading silver with your own money is a daunting task. Even if you take on board all of the points we have covered today, you could still be in a position where you lose money as part of your trading.

Many novice traders lose substantial amounts of money before they settle on a strategy that works. Knowing how to use your money effectively is a surefire way to ensure that trading silver isn’tisn’t something that causes you to lose money. Hopefully, in the long run, it acts as a solid second income stream for you or even becomes your full-time job.

However, before any of these plans become a reality, you must be prepared to lose money, learn a considerable amount of new information, perform crucially important risk management, and only use money that you would be able to lose. In the event of a forex market crash, you don’t want to end up in financial difficulty. Managing your capital is the optimum way to avoid this eventuality.

Introduction

Henry Hazlitt once said, “If precious metals had been abundant, they would not have been precious.” This is the point of precious metal trading, a market that has truly proven its mettle (no pun intended).

Investors trade precious metals because they are valuable, especially with worsening economic conditions. They buy them for investment value, wealth preservation and, of course, bragging rights.

Several precious metals are mined globally. However, we generally focus on the ‘Big Four’ (gold, silver, platinum and palladium). This is despite having rarer precious metals like rhodium (the rarest of them all), ruthenium, and osmium.

The Big Four are the most accessible and practical of the lot. So, this article will focus on how to trade precious metals of these kinds.

Trading precious metals: what is it?

It’s all well and good that you wish to be a precious metals trader. But let’s first define a precious metal. A precious or noble metal is a rare, naturally forming substance from the Earth’s crust. Rarity is one of the standard features of these commodities, making them difficult to mine.

Because they generate massive demand, they have much higher economic value than other common or base metals like iron, lead and copper. Unlike their counterparts, precious metals in their natural state technically don’t rust.

Also, they have a lustrous texture, another factor contributing to their high-value social and economic status. These are the main reasons we trade precious metals. However, what do we use these commodities for? Let’s take a look.

Gold (Au)

Although gold is not the rarest or priciest metal, it is the most revered. Heck, we even had a gold standard at some point in history. The world has been fascinated with trading metals in gold form since the beginning of civilization.

Gold has several favorable qualities which make it a highly desirable metal. It:

Conducts heat and electricity well
Is very ductile or pliable (an ounce can be stretched into 80 km of gold wire)
Is reflective of heat and light

Last but not least, gold, this metal is simply beautiful. Whether you emboss, hammer, twist or cast it, its orange-yellow colour remains appealing. Here is a sample of the industries where gold is used:

Jewelry
Coinage
Aerospace
Electronics
Dentistry
Medicine

Silver (Ag)

Silver is, of course, not a particularly rare commodity when we want to trade precious metals. Still, it is the second-most popular commodity after gold and has many practical benefits. Like gold, silver is ductile, durable, corrosion-resistant and lustrous.

Yet, what sets silver apart is that it has the greatest thermal and electrical conductivity among all metals. Here are a few of the practical applications of this commodity:

Electronics
Jewelry/silverware
Photography
Coinage
Mechanical or vehicle parts
Glass-making
Medicine

Platinum (Pt)

Few people think of platinum when they trade precious metals. Yet, it is the second-rarest of the lot, with roughly 90% of this commodity found only in South Africa.

Platinum is sometimes referred to as ‘white gold’, given its silverish-white appearance. Not only that, this commodity possesses outstanding economic value, like gold. Platinum is very unreactive, ductile, and soft, resulting in numerous industrial uses:

Chemicals
Jewelry
Electronics
Petroleum
Automotives
Glass

Palladium (Pd)

Palladium is another rarely-mentioned commodity when it comes to precious metal traders. While it is less scarce than gold and platinum, it is slightly rarer than silver. It is a soft silver-white metal that resembles platinum and shares many characteristics.

Interestingly, over 50% of palladium’s supply is used for exhaust emissions controls in automotive industries. Here are some of the metal’s other usages:

Medicine
Deintry
Groundwater treatment
Jewelry
Chemical applications
Hydrogen purification

The different ways to trade precious metals

There are generally three methods to trading metals. Before we dive into them in more detail, the table below summarises the pros/cons for each.

Method	Pros	Cons
Bullion trading	– Physical and pure ownership- No counterparty risk- May be useful in hyperinflation scenarios and wealth preservation- Simpler to understand-	– Very expensive- Not liquid- Storage costs apply- Bulky- Doesn’t provide any yield
Mutual/exchange-traded funds	– Online-traded- Best for passive investing- Diversification- Lower fees	– Only suitable for long-term investors- Reduced profit yields
Derivatives	– Online-traded- Leveraged product- More accessible- No physical ownership of the asset- Potential for the most gains- Very liquid	– Over-leveraging can result in massive losses- More complex to understand

Bullion trading

Here, we typically refer to gold and silver in nearly 100%-pure bar form. However, you can also purchase platinum and palladium as bars as well. Central banks popularly hold bullion to settle their international debt.

Investors also keep it in case of potential hyperinflation events. Precious metal traders consider this route the purest way to own this commodity. The primary reason is there are no ties to any third-party financial system like a bank, broker or exchange. So, there is no counterparty risk.

On the downside, bullion trading isn’t technically an investment. Thus it doesn’t offer any passive income because it is used more as an inflationary hedge. Of course, it is also very expensive, requires extra costly storage and is challenging to resell.

The other alternative bullion trading is rare and collectable coins owned by private dealers. This is perhaps the most investment-worthy approach to trade precious metals in their physical form.

Unlike bullion, it is less bulky and typically doesn’t need elaborate storage. However, rare coins are also quite costly and difficult to resell.

Mutual/exchange-traded funds

The next approach to trade precious metals is through mutual funds or ETFs (exchange-traded funds). Although these have some distinctions, the common theme is that each is an index of other metal-related instruments.

For instance, the abrdn Physical Precious Metals Basket Shares ETF (GLTR) is an index to trade precious metals. It is based on the prices of gold, silver, platinum and palladium bullion collectively. Yet, the majority of funds for precious metals track the price of gold and silver. There are fewer individual ones for platinum and palladium.

The first purpose of funds is easier diversification. For instance, the GLTR contains four metals in one, meaning you don’t need to invest in each market individually. The second benefit of funds, primarily ETFs, is they are designed for long-term investing.

Like derivatives (which we’ll cover next), we trade funds online, meaning there is no need to own any commodity physically.

On the downside, because funds are passive and long-term in nature, you typically generate less profit when you trade precious metals in this fashion compared to derivatives.

Derivatives

Let’s now cover the most popular and accessible avenue to trade precious metals. A derivative is an online-traded financial contract whose value is taken or derived from an underlying asset. For instance, the XAU/USD forex pair is the price of gold against the US dollar.

As with funds, we don’t own the traded physical asset. Instead, the broker settles the difference by crediting your account (if the position is profitable) or debiting it (if it is a loss). This is also why a derivative is called a CFD, contract for difference.

The most outstanding feature of derivatives is leverage or margin. This simply means you can open far larger positions with a smaller balance. Therefore, derivatives can provide the most significant returns in precious metals trading in a relatively short period (but also the worst losses).

This is especially true with forex margin given its magnitude. Another benefit is that you can trade precious metals in many markets like crypto, forex, options, and futures, among others.

The next advantage of derivatives is they are very liquid. This means you can buy and sell in seconds, which isn’t possible with physical ownership. Lastly, derivatives suit all time-frames of trading, from short-term to long-term.

Overall, it is arguably the best way to trade precious metals.

Conclusion

The longevity of any financial market lies in its real-world practicality. Aside from the beauty aspect, precious metals trading is a component of many industrial usages. This means there will always be demand for gold, silver, platinum and palladium.

The perception of these commodities being safe havens and storers of value remains, although this has been challenged in the last few decades. However, you don’t have to only trade precious metals; they can form part of your diversified portfolio.

Our final point is that the metals trading market can be quite volatile, as with any financial security. So, keep this in mind and invest cautiously.

Introduction

What Is Forex?

What Is Silver Trading?

#Tip 1 – Understand What Drives The Price

Tip #2 – Decide On What Method You Will Use

Trading Silver Options

Trading Silver Futures

#Tip 3 – Use An Effective Risk Management Strategy

#Tip 4 – Expand Your Knowledge

#Tip 5 – Manage Your Capital Responsibly

Introduction

Trading precious metals: what is it?

Gold (Au)

Silver (Ag)

Platinum (Pt)

Palladium (Pd)

The different ways to trade precious metals

Bullion trading

Mutual/exchange-traded funds

Derivatives

Conclusion

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