How to Trade Silver Futures

Silver is one of the most popular and useful metals in the world. The majority of this commodity in mined in Latin America, while its consumption is spread all over the world. With such a heavy global reach, it should be no surprise to see that silver is also a big-name financial instrument. For those looking to dabble in silver futures, there are a number of options available, leaving some to wonder where to begin. Below, we outline strategies for trading silver futures as well as a few other products that offer similar exposure [see also Four Commodities To Buy Before Roubini’s “Perfect Storm”].

The Exchanges

First things first, those looking to invest in futures will need to decide which exchanges they would like to utilize. Below, we outline three of the most popular options in the world for trading silver futures [for more commodity news subscribe to our free newsletter].

  • Commodity Exchange: The COMEX, a member of the CME Group, offers exposure to a number of commodities with a focus on metals, including silver. The standard silver contract (which is also optionable) represents 5,000 troy ounces, though investors can also use the E-mini and QI miNY contracts which represent 1,000 and 2,500 ounces respectively. One benefit to these contracts is that they trade Sunday-Friday between the hours of 6:00 p.m. and 5:15 p.m (CST), meaning that investors can make a play for approximately 23 hours every day (there is a 45 minute break period between each day).
  • London Metal Exchange: The LME offers silver forwards curve data to any investor interested in signing up. Investors will be able to see 1 week forward curves as well as 1, 2, 3, 6, 9, 12, 24, and 36 months forward, giving you a great long-term view on the metal.
  • Multi-Commodity Exchange: As of 2011, the MCX was ranked number one for silver trading as it offers two different contracts. The standard silver futures represent 30 kg and trade in March, May, July, September, and December. Silver M contracts are only available as launched and represent 5 kg of the precious metal. The MCX is based in India so it may be a better option for investors outside of the U.S. or those looking to trade on an exchange beyond domestic borders.

Common Silver Trading Strategies

As far as futures contracts are concerned, playing silver is going to require a considerable amount of attention and should be left to only the most active of traders. Neglecting your position for even as long as an hour can have a dramatic effect on the outcome of your investment. Silver’s big price drivers are inflation, emerging market demand, and (believe it or not) the photography industry. Finally, it is important to remember that as a primary trading instrument, developing trends in markets and how the majority of traders are behaving can also skew silver prices. Remember, the trend is your friend [see also 25 Ways To Invest In Silver].

For those who choose to shy away from actual futures contracts themselves, there are still options available for trading. Perhaps the best alternative to outright owning the contracts is to utilize the iShares Silver Trust (SLV) which invests in physical silver. The fund trades more than 8.9 million times per day and is home to over $8.5 billion in assets. This ETF has returned a massive 104% in the trailing three years, making it a much more enticing buy.

Further Resources and Reading

For further reading on silver and related topics, check out some of the links below [see also Were Gold and Silver Manipulated Alongside LIBOR?].

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Disclosure: No positions at time of writing.

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