Silver Futures Trading - Meaning, Benefits and Importance (2024)

After gold, silver is known to be the most invested precious metal commodity. For centuries together, it has been used as the currency, for jewellery, and as a long-term investment choice. Silver futures are among the various silver-based tools for trading and investments today.

What is Silver Futures Investing?

Futures, in the trading environment, means a scheme where a commodity transaction is executed on a specific day, but the product is delivered only in the future, on a date that has been agreed upon by the two parties that are involved. It will mainly mean that an agreement is entered on a particular date, but the buyer could take physical delivery of the product only after a specific period. Silver futures mean a trade-in silver that follows this format wherein an initial payment is made and an agreement signed, with the complete delivery scheduled on the date in the agreement.

Silver futures are based on speculation, and there are the attributes of risk involved.

Demand of Silver

Silver futures are seen as a generally safe investment, similar to gold. When the economy is in a slump, individuals tend to sell their stocks and invest in precious metals such as gold and silver. Because silver can be used as a hedge against inflation, demand and prices may rise during periods of high inflation.

Silver demand and pricing are influenced by a variety of factors. The monsoons in India can have a big impact on silver demand and, thus, pricing. Farmers will spend less on non-essentials like silver as a result of a poor season. Silver demand and pricing will be influenced by the state of the economy.

Silver demand will be affected by times of uncertainty. People will cling to the valuable metal during times of war or civil disturbance since it is portable, does not require verification and is generally recognized.

Silver prices are influenced by the US currency as well. A weak dollar is considered a sign of a poor economy. Therefore investors will put their money into silver rather than economic activity.

Benefits of Trading Silver Futures

Some of the major benefits of trading silver futures are mentioned below:

• A buyer would not have to spend additional on finding an immediate storage facility, as the physical delivery would take place only in the future.
• While the agreement is signed on a specific date, a buyer could get additional time to make final payments to settle the amount.
• An individual has the provision to short sell the silver.
• While not completely liquid, there is enough liquidity to be offered.

Importance of Silver Futures

Silver usually follows in the footsteps of gold and is seen as a safe-haven asset. During times of instability, investors rush to precious metals, which increases demand, and if gold is too pricey, silver is a less expensive option for those wishing to enter the space.

Futures provide buyers with a limit on their potential losses, which attracts potential hedgers. Futures are commonly used by hedgers such as producers, portfolio managers, and consumers to reduce price risk, protect against inflation, and profit from favourable price changes.

Speculative investors, on the other hand, can use silver futures to obtain exposure to the white metal for a fraction of the cost of a contract.

Of course, in the futures market, silver carries the same risk of huge losses – due to the leverage involved, investors can quickly lose money in their accounts. As a result, many experts advise rookie traders to stay away from the futures market unless they have a firm grasp on their preferred risk profile, time horizon, and cost consideration.

How to Trade Silver Futures

You must use the services of a broker who is a member of the commodity exchange to invest in silver futures. You must pay an initial margin to the broker prior to trading. That is, you must pay a percentage of each transaction you make on the exchange. In general, these futures have minimal margins.

Commodity markets throughout the world, such as the New York Mercantile Exchange (NYMEX) and the Tokyo Commodity Exchange, trade these futures (TOCOM). These are traded on Indian markets such as the Multi Commodity Exchange (MCX). On the exchange, traders can also trade silver options.

Check Other Futures