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How to trade silver: a quick guide

Commodities
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Silver is one of the few main precious metals, and it’s also an industrial metal; it gets more and more attention for its industrial uses in relation to the global green energy transition. If you are beginning to consider trading silver for the first time, you should start by understanding what factors drive silver.

Here are some of the main influences that can affect the price of silver:

  • Monetary policy: The policies of the US Federal Reserve, including interest rates and inflation targets, significantly influence silver prices. As silver does not yield interest, rising interest rates increase the opportunity cost of holding silver, often leading asset managers to reduce their exposure to real assets.
  • Currency fluctuations: Silver prices typically exhibit an inverse relationship with the value of the US dollar. A weaker dollar tends to drive silver prices higher, and conversely, a stronger dollar can suppress silver prices.
  • Geopolitical tensions: Silver is considered a safe-haven asset, sought by investors during times of geopolitical uncertainty or crisis due to its link to gold and its associated intrinsic value and perceived stability.
  • Supply and demand: Silver is often produced as a byproduct from the mining of other metals leaving the supply side relatively inelastic meaning a period of high prices may not necessarily lead to rising production.  Demand is split evenly between investment demand for silver coins and bars on one hand, and industrial applications such as solar panels, electric vehicles, medical equipment, silverware and jewelry.
  • Speculative activity: Silver is often seen as gold’s younger and more volatile sibling, as it tends to follow the direction of gold more aggressively, meaning a movement in gold tends to create a similar but bigger movement in silver. Speculators such as hedge funds anticipate and amplify price movements – up or down – based on fundamental and momentum-driven factors. 
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So how can you actually trade this precious popular metal? Here are a few ways:

  • Physical silver: Purchasing physical silver in the form of jewelry, coins, or bars provides direct exposure to the metal but involves considerations such as secure storage, insurance, and higher trading costs.
  • Silver ETFs/ETCs: Exchange-traded funds or commodities offer a convenient way to invest in silver without holding physical metal. These products track silver prices closely and can be traded easily on exchanges.
  • Silver mining stocks/ETFs: Investing in silver mining companies or ETFs that hold a basket of mining stocks provides exposure to gold prices. However, these investments carry operational risks and may exhibit higher volatility compared to gold itself.
  • Silver futures, CFDs, and options: Trading silver futures, contracts for difference (CFDs), or options involves higher risk due to leverage. While these products offer opportunities for speculation, they also require careful risk management to mitigate potential losses. The COMEX silver futures has a contract size of 5000 troy ounces, and with a current price around USD 28 per ounce, a contract value of USD 140,000. Being a leveraged product, the buyer or seller of a futures contract has to provide around USD 10,000 as collateral per contract, leaving the owner of the position highly exposed to losses without proper risk management. CFDs track the futures price with the main difference being the ability to trade smaller quantities than the 100-ounce futures contract.
  • Spot silver trading: Another leveraged product that may suit traders using risk management tools while long-term investors may find ETFs being the better option. At Saxo you can use leverage to trade on the price of silver against 12 different currencies – including US dollar, euro, yuan and Swiss Franc – and gold.

Now that you understand the factors that influence the price of silver, and the ways to trade silver, you need to figure out if it’s a commodity that is right for you. The only way to do that is to consider your tolerance for risk, and time horizon, as well as your personal financial goals.

Silver is considered a relatively safe precious metal to invest in, but the price still responds to changes in other markets such as the dollar and government bond yields. Before making any investment, always be sure to keep yourself well informed with the latest market news and insights.

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