Silver is one of the most precious metals in the commodity market. Investors use silver to hedge against inflation situations and see silver as a safe escape. There are various strategies associated with silver trading and are used to varying degrees by investors depending upon their financial plans. Some advanced silver traders and investors also use technical analysis tools and indicators to predict the movements in the market.
Silver in the Market
Silver is a Unique commodity because it can be used for both industrial and investment purposes. The price of Gold is primarily driven by the investments futures and only a portion of it is driven by its industrial use for the commodity. The demand for silver comes from the industrialized world, in the United States, Europe and Japan has reached 39% of the worlds’ demand and has increased their demand for this metal. The Demand for this metal is expected to rise as their economies grow.
Silver can be found all over the world, but there are five countries that cover more than half of the worldwide production, these countries are: Mexico, China Chile and Australia, with Australia having the largest mine amongst all the countries.
Investing in Silver
Bars can be bought typically in bars and that varies in sizes and weight, though a great disadvantage when investing in Bullion is that these bars should be stored physically, and has no interest to the investor.
Buying coins is another way of investing in silver; this is a popular method of physically owning silver. Although they usually sell for a premium, much like silver bars coins do not yield interest.
Certificates are more convenient because, it allows investors to buy and sell silver without owning the product physically
Mutual Funds is a great way to diversify your mining assets, However, Mutual Funds require a bigger investment small silver purchases.
Exchange-Traded Funds (ETFs)
Like other precious metals, Silver ETFs are also possible to invest in, and it can help investors gain exposure to silver. These ETFs can directly hold silver or invest in derivatives that track the price of silver.
Silver Miner Stocks
Investing in Silver Miners requires the know-how of the equity markets, these companies offer leverage to silver prices and some even pay dividends as well.
Reasons to trade silver
Silver has been used traditionally for various purposes like mirror works, jewellery making, as currency, and more.
In current times, silver is also used in technologies such as making batteries, circuits, and other industrial products.
Traders and investors trade silver for various reasons. Here are the following principal reasons one should trade silver.
- Protection against risk
One of the core reasons to trade silver is that it provides protection to the portfolio when economic challenges occur.
Silver tends to hold its value during economic crises. During the economic turmoil, Central banks lower the rate of interest and increase the supply of currency in the economy. This can weaken the value of stocks, bonds, or other securities, and also leads to a reduction in the value of currencies.
Silver, however, accounts for limited above the ground supply in the market. Therefore, silver can hold onto its value more or less during such times.
In this way, by adding silver trading to the portfolio, many traders and investors can cover up or at least protect their trade for major economic downfalls.
- Pan presence of silver
Silver is used in many industries, particularly technology, at the current times. This means high demand and high prices. This increases the strength of silver in the economy.
- Supply of silver
One of the essential aspects that draw traders and investors in silver trading is its supply scenario.
The production of silver has been relatively inactive in recent years, and that has increased its value as well as demand in the market.
Silver right now has accounted for deficient mine production. At the same time, scrap supply has been dwindling since 2014 in many countries. The combination of these two issues has made silver more valuable in the market.
- Increase in the investment demand of silver
While industrial demand for silver remains mostly consistent, the demand for silver in the investment and trading sector can vary.
Increase in demand for silver can lead to increase in prices and supply remains limited.
This leads to increased investment demand.
Silver Trading Strategies
There are various strategies available for silver trading. Let us discuss the two most popular silver trading strategies.
- Trend Trading Strategy
The trend trading strategy consists of a three-step process:
- Determining the trend
A trending market refers to the one which leads to extremes in prices on a consistent basis.
An uptrend is identified by higher lows and higher highs. A downtrend, on the other hand, is a measure of lower lows and lower highs.
There are different analytical techniques that can be taken into consideration to determine trends. Some most popular would include moving averages, drawing trend lines, etc.
- Adjusting signals according to the trend movement
There are numerous tools available to depict the buy and sell signals for various securities, including silver. There are some excellent and effective indicators to depict buy or sell points of the trade. The list includes:
- Trend lines
- Simple Moving Average
- Relative Strength Index
- Moving Average Convergence Divergence
In an ideal scenario, traders and investors should pick up an indicator, learn its whims and fancies, get comfortable with it, and then trade the entry and exit points.
- Setting stop loss
It is important for a trader to understand the concept of risk management while indulging in silver trading. Using stop losses is essential to manage the risks.
- Range trading strategy
A range trading strategy works when the market is bounded by range. A silver market can not always trend upwards or downwards. There are always periods bounded by range when the prices move sideways. In such a case, the range trading strategy is to be used.
Macroeconomic indicators that help in determining prices of silver
- Inflation: Silver can be used for hedging during inflation. Price of silver will take a rise during the inflationary conditions in the economy. But this will not work in the short term. This is because central banks set interest rates on silver. Therefore, the pierces and value of silver can move in whichever direction depending on the interest rates.
- Gross Domestic Product: In recent years, the price of silver has been inversely proportional to the GDP, especially the unemployment rates. But the connection is not that powerful.
One way to analyse the movement of silver prices is by using technical indicators. Most technical, analytical indicators are used to infer commodity trading. Some are briefly mentioned below:
- Bollinger Bands: This indicator provides deviation lines of usually twenty days to analyse the price changes in silver trading. Bollinger Bands account for computing whether the current price is lower or higher than the regular price.
- Moving Average Convergence Divergence: This technical has moving averages as the core concept. Moving average convergence divergence computes the differences and changes in silver prices.
- RSI - relative strength index: RSI shows or depicts how massive the changes and differences in prices have been. Traders use a relative strength index to predict downward and upward movements in prices.
- Gold to silver ratio: This is one of the most crucial technical indicators when it comes to trading silver. This ratio stems from the connection between silver and gold prices. Most of the time, when gold prices are on a hoke, the silver prices rise too, and vice-versa. Most of the time, the silver prices walk behind the prices of gold. This can be used by investors and traders to predict the course of the silver trade, and how it ought to pan out.
Ways to trade in silver
There are various ways to trade in silver like bullion, CFDs, futures, shares, options, and ETFs.
- Silver Bullions
One of the most customary ways to trade silver is through physical coins, and bricks called bullions. However, one must have a safe storage unit to trade in silver through bullions.
These storage units can cost a lot in terms of acquisition and maintenance. This can make the bullion holding an illogical game plan.
But one can also consider trading silver bullions through online bullion dealers.
- The silver contract for difference
One way to trade in silver as a metal commodity is through CFDs - contract for difference. They help in speculation of silver through the prices. The value that a CFD carries is the cost space between the price of silver at the time it was bought and the current price.
Many brokers around the world offer CFDs on silver.
If you are inquiring for a broker to facilitate trading in silver, we would recommend HFTrading. HFTrading is a regulated online broker functioning in Australia and New Zealand. HFTrading deals in various instruments like metals, commodities, forex, indices, stocks, and more.
CFDs are very challenging instruments and invite high risks towards traders and investors.
The risk magnifies due to high leverage offered. One must consider the ins and outs of CFDs before investing through them.
One important thing to mention here is that CFDs are not traded in the United States due to the local rules and regulations.
- Silver exchange-traded funds
ETFs or exchange-traded funds are trade shares on the exchange in a similar way the stocks are traded.
ETFs may seem like one of the best ways for silver trading; one must take the risk factor that comes with ETFs into consideration.
ETFs can also be traded through options and futures. The storage and security are incurred at the end by the trader when trading silver through ETFs. When the share market is at a down road, so are the prices of ETFs.
Buying shares in companies indulging in silver mining is another way for silver trading. This method works for making bets based on leverage on the prices.
- Silver Futures
Futures are the trading instruments which facilitate leveraged trade on prices of commodity prices.
When the prices are on a fall, the traders have to submit additional marginal costs to keep their positions. When the contract ends or expires, the physical settlement takes place through the delivery of silver.
Reasons traders avoid silver trading
There are some ways that silver trading can be detrimental. Let us take a look.
- The significant chunk of silver comes from outside the United States. When the dollar is reflecting powerfully against other currencies, the prices of silver tends to go down the road.
- If the demand for silver decreases in primary silver wanting countries like India or China, then the value of silver falls.
- There are many developments in technologies and substitution products which have given silver a backseat.
Role of exchanges in trading silver futures
Silver dealing through futures exchanges can provide for the following:
- A regulated and safe exchange place to facilitate trade between sellers and buyers.
- Safeguard wall against the counterpart risks.
- An efficient and effective price-determining system.
- Standardised and authorised trading instruments.
- Listing of at least sixty months forward dates which results in a price curve to enable price determination to an extent.
- Trading opportunities that do not require traders to physically hold silver, yet take advantage of the differences in prices.
- Taking short positions in the silver market for both trading and hedging.
- Extended hours to grant flexibility to silver trade.
Factors that affect prices of silver futures
During the past few years, silver as a metal commodity has witnessed high levels of volatility, pushing it away from being a safe asset to trade.
During the 90s, demand for industrial purposes of silver was about 35 to 40 percent of the total demand. The remaining was for investment and trade. At the current times, the industrial demand has risen to become half of the total demand for silver. The increase in the demand for silver for industrial purposes has been one of the main reasons for rising volatility. A reduction in industrial demand would decrease the prices of silver.
On the opposite, there are many factors that can lead to an increase in the demand for silver and also lead to a rise in the prices. The growth of technology and automobile industry can lead to increase in silver prices, increase in demand for substitutive sources of energy like solar energy can increase the demand of silver (machines and tools of solar energy use silver).
To predict the price trends of silver, an investor or trade can do the following:
- On the supply arena, study the mining production of silver from major silver supplying countries like China, Mexico, and Peru.
- On the demand part, study both the investment and industrial demand for silver.
- From a macro level, take the overall economy into consideration. Study other alternative metals and investment fields like gold, oil, stock markets, etc.
Tips for efficient silver trading
- You must decide that you want to invest or day trade the silver in the market. There are various ways to trade silver. One must choose the style that goes best with her or his financial plans. Decide whether you want to play long term in the girls or you just want to take advantage of short positions in the market.
- Trade silver during main trade hours. This will help in reducing the spread costs.
- It is recommended for silver traders and investors to risk a minimal amount of individual silver trades. Stop losses should be used to manage risks diligently in silver trading. A wise investor should not risk anything more than 5 percent of capital on the open silver trades.
- To have the edge over the market, the gold to silver ratio can be used. It would help in determining the price course of the silver trade, as silver proxies tend to follow the gold prices.
- Charts, pivot points, entry-exit points should be analysed thoroughly and adequately.
- Make efficient use of technical charts. Technical charts can prove to be very useful while analysing commodities and metals. Making a fair choice of your opening and closing trade levels will minimise losses and maximise the gains.
Silver has been a strong metal and is used in many industries. The silver trade and investment have also been popular among traders for a long time.
It is largely considered a consistent source of wealth. It depends on the trader or investor on how efficient the silver trading can pan out.