How To Trade Silver: The Most Powerful Guide

The market for trading silver goes back centuries. Whilst it might not carry the same value as gold, it is still an investment that many traders use to hedge their portfolio. Commodities such as silver and gold still hold use on the international trading markets.

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Whilst there has been plenty of market visibility in cryptocurrency and stock market trading, commodity trading and specific markets where you trade silver are areas that could be more well-documented. This doesn’t mean there aren’t opportunities in this field. In fact, it is quite the opposite. Commodities include a wide range of different goods. Today we will be focussing solely on how to trade silver, but other examples of commodities include:

  • Silver
  • Gold
  • Oil
  • Coffee
  • Water
  • Wheat
  • Sugar

This isn’t an exhaustive list either; other items would fall into this category. Despite some of the large-scale companies that classify as commodities, one of the biggest markets involves when investors and speculators trade silver. Simply put, a commodity is the buying and selling of natural goods, goods that are extracted from the Earth. There are set characteristics that set commodity trading apart from other markets. However, this is the primary reason.

Silver has had a tumultuous year. However, there is always some level of interest that cause speculators to drive the price of the commodity both up and down. If you are looking for where to trade silver, you can find some clear direction in our article today that will help you in your journey. Likewise, if you are looking for what is silver trading for beginners, you will find some helpful information in our article too.

We also have other insight pages if you’re a beginner. These include how to trade forex, how to day trade forex, the positives and negatives of crypto vs forex trading and algorithmic trading in forex.

Trading Silver

The two main routes into the silver market are trading and investing. It is the same principle as stocks, where you can trade and invest. If you are looking to invest, this is a long-term strategy where you own a portion of the commodity, hoping for a return over a longer period. Trading silver is speculative and focused on shorter-term movements influenced by global events and media. 

You can also trade silver online and ensure that your initial buy and sell orders are met by setting up effective risk management tools like stop losses and take profit limits. If you want to learn how to start trading silver, it is advisable to learn about how the industry works.

Within these two categories, there are several subcategories. All of which are legitimate silver markets:

Silver Bullion

Buying a silver bar is the oldest method of silver trading. This method of silver trading dates back thousands of years. There were many ancient civilisations that would value silver over gold. This trend began to turn on its head to trade silver, considered less valuable than gold in modern society. However, this is no longer a premium route into the market due to overhead costs such as storage and insurance. 

Spot Silver

Spot pricing is the live price of the commodity. This means you can trade silver on the market at live prices. Spot silver is a textbook trading method, and bullion purchases are a textbook level of investing. The market enables traders to buy and sell the commodity without having to exact ownership of the underlying asset. If you are trading silver via this method, you have the flexibility to buy and sell at the market value, and you don’t take the financial hit of the overheads that come with trading silver bullions.

Silver Options

Trading silver options are contracts where you purchase the right to trade silver for a specific price on a specific date. However, there is no obligation to purchase the commodity. The best way to remember it is that put options give you the right to sell silver, and call options give you the right to buy silver. Traders much prefer this method over investors. The reason is that you are speculating on the commodity’s price going up or down by a specific date.

Silver Stocks

This is a great way to tackle this variety of commodity trading. Silver stocks are potentially the most popular way to trade silver. If you are using stocks, it could be the ideal way to obtain a footing in the market. It can be used as a broader opportunity to gain exposure to smaller roots within the silver trading market. Including:

  • Mining
  • Production
  • Sales 
  • Funding 

Essentially, any company that trade in silver or use the extraction of silver to drive their business. There are thousands of companies all over the world that use silver in some capacity. Therefore the price is derived from both the output and value of these companies.

Silver Futures

This works in the same way as futures trading in other markets. Silver futures are contracts to trade silver at a set amount on a specific, prearranged date in the future. The contract authenticates and verifies the agreement, and both ends of the deal need to oblige to the agreement or could face penalties.

Learning how to trade silver in futures is a fairly complex way of trading the commodity. Any silver trade comes with risk, but if you are trading in silver often, you will become more aware of the pros and cons of the market. Day trading silver is a risky strategy, but these traders often have an extremely solid knowledge of what drives the market and when to execute their position.

Sticking to your initial sell point is crucial for any trader. If you switch your goal mid-trade or allow yourself to trade on emotion, you might be in for a turbulent ride. You can mitigate the risk of trading on emotion by setting up stop loss and take profit limits as we mentioned earlier.

Silver ETFs

Exchange-traded funds (ETFs) are designed to sell an investment as a convenient package. This can include many things, such as shares in a company that specialises in silver, to the price action of a whole bullion. The idea is to allow traders or investors to enter the market with as little hassle as possible. Due to the number of variables involved, you receive broader exposure than you would if you were to trade silver via one position. Ultimately, this can work both in your favour and against you, and it is part of the risk you need to weigh up before investing in a silver ETF.

What Are The Signs To Look For?

When trading silver, you want to understand the factors driving the price in each direction. Silver is one of the oldest commodity trading markets, and although it plays second fiddle to gold, it is still an important market that can provide investors with solid returns.

Inflation

Silver and gold are hedges against inflation. Speculators and traders often move their assets into these commodities when there is high inflation. This is because their worth is not tied directly to a central currency like the Dollar. Extenuating factors drive silver trades, which means investing is more reliable during times of high inflation. However, gold investment can sometimes outweigh silver investment during times of inflation, so it is best to analyse both of these markets simultaneously due to their relationship.

Prices Of Other Metals

Silver isn’t a standalone commodity in the field of precious metals. It is utilised in the extraction of other metals. Copper is the best example, where mining accounts for over a quarter of silver discovery. When copper price increases, it will likely act as an indicator that has a positive effect on the price of both. 

How It Is Used In Industry

The use of silver permeates many parts of the global economy and the technology industry. You can find a substantial implementation of silver in industries such as:

  • Medicine
  • Battery Development & Manufacturing
  • Dentistry
  • Lighting – especially strobe and LED.
  • Currency creation – specifically for the mass production of coins.

If there is positive news about these industries, which will lead to further demand for silver, this will lead to an increase in the price as it is a natural marketplace.

The Relationship Between Gold And Silver

Silver traders will often examine the relationship between the world’s two biggest precious metals markets. As we discussed earlier in the piece, the two have a relationship that correlates. Silver has been considered the lesser of the two metals. This can be seen in currencies worldwide, where gold denominations are higher than silver. We aren’t downplaying silver too much, though, as they are part of an asset class that acts as an inflation hedge to centralised currency and other markets. 

Silver coins and a silver bar

There’s a ratio that provides you with the direct amount of silver it would take to purchase an ounce of gold. Analysts and traders use this to try and settle on what trading strategy they will use when trading either commodity.

It is a fairly simple calculation to understand. For instance, if the ratio is 10 to 1, you would need 10 ounces of silver to buy an ounce of gold. This measurement is a good indicator of whether or not the real value of silver is increasing, as this ratio would decrease, and you could buy more gold for less silver. Traders will often use the volatility within this ratio to execute a trade in either commodity. 

If the ratio increases, this signals a silver buying opportunity. Conversely, silver becomes more expensive if the ratio is lower, indicating a good opportunity to trade or invest in gold.

Conclusion

Some traders find commodity trading more exciting than other forms of trading, such as stocks or cryptocurrency. This is because you focus on real markets, where the tradable good is a key feature in many strands of the economy. It is more intertwined into our society and can offer more practical use than investing in a blue chip stock. 

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