Commodities trading offers many opportunities for wealth creation, and one such option is silver futures. Just like gold, silver has long been considered a safe investment, especially during inflation and economic uncertainty. Apart from its ornamental value, silver is in high demand for industrial usage, including electric vehicles, solar panels, and 5G technology. This has also resulted in a significant rise in silver prices.
By trading in silver futures, you can benefit from changes in silver prices without owning the metal itself. If you are keen on exploring silver futures trading, then this blog can be the right guide for you.
Here, you will learn about the basics of silver futures trading, how it works, its benefits, and how to go about trading in silver futures.
Silver futures are derivative contracts that obligate you to buy or sell a specific amount of silver at a set price on a future date. Derivatives are financial contracts that derive their value from an underlying asset. In this case, since we’re talking about silver futures, the underlying asset is silver.
Silver futures allow you to speculate or estimate the price movements of silver without owning the physical metal. For example, if you think silver prices could rise, you can buy a silver futures contract now and sell it later at a higher price. Conversely, if you expect prices to fall, you can sell a futures contract and buy it back at a lower price later.
You may also use silver futures for hedging purposes. Hedging means protecting yourself against potential losses. For example, if you own silver jewellery and worry about silver prices dropping, you can sell a silver futures contract to offset the loss. If the price does drop, the profit from the futures contract can help cover the decrease in the value of your silver jewellery.
Silver futures can also be considered for portfolio diversification. Adding silver futures to your investment portfolio can help spread risk because the price of silver often moves differently than other assets like stocks or bonds.
When you enter a silver futures contract, you agree to buy or sell silver at a future date. These contracts are standardised with set quantities and qualities of silver. The main components of silver futures contracts are:
- Contract size: In India, commonly traded silver futures contract sizes typically represent 30 kg of silver.
- Delivery date: This is the future date when the transaction will be settled. You can choose contracts with different delivery dates, from a few months to over a year.
- Price: This is the agreed price for the silver when you enter the contract. It protects both parties from future price changes.
Also Read: How To Trade In Future And Options?
Here's a step-by-step guide that you can follow to trade in silver futures live.
1. Open a Trading Account:
To trade silver futures, you need to open a trading account with a broker or broking platform that offers futures trading facility. Ensure the broker has a good reputation and provides a user-friendly trading platform.
2. Market Research:
Conduct thorough research on silver as a commodity while trying to get a fair understanding of the silver market. Try to learn about factors that influence silver prices, such as economic indicators, geopolitical events, and supply-demand dynamics.
3. Entry and exit points:
Determine when to enter and exit trades. You can make use of technical and fundamental analysis for this. Technical analysis involves studying price charts and patterns, while fundamental analysis is about studying economic factors and market news.
4. Trade size:
Decide the size of your trades based on your risk tolerance and financial standing. Position sizing ensures you do not overexpose yourself to risk in a single trade.
5. Stop-loss orders:
Determine how you want to set up stop-loss orders on your trades. This can help in limiting potential losses. Never risk more finances than what you can afford to lose.
6. Monitor Your Trades:
Lastly, keep a close watch on your trades and the overall market. Use trading tools and platforms to track price movements, news, and other relevant information. Regular monitoring helps you make timely adjustments to your positions.
Silver futures investing offers several compelling benefits that can enhance your investment portfolio.
|
Benefit |
Description |
|
Leverage |
Leverage in silver futures allows you to control a large amount of silver with a small investment called margin. For example, with a 10% margin of ₹10,000, you can control ₹1,00,000 worth of silver. This can help boost potential returns. |
|
Hedging |
Silver futures act as a hedge, meaning they protect against price volatility in other silver-related investments. For instance, if you own physical silver or silver assets, silver futures can offset potential losses from adverse price movements, helping stabilise your overall portfolio. |
|
Diversification |
Silver futures add variety to your portfolio, spreading risk across different asset classes. This diversification reduces your dependence on any single asset, enhancing your portfolio's resilience against market fluctuations. |
According to data published as part of the World Silver Survey, silver has maintained an annual demand of around 1,000 million ounces over the last decade. However, supply hasn't exactly kept up due to stagnancy in silver mining.
In 2023, only 824 million ounces were mined, down from 897 million ounces in 2015, while industrial demand rose from 457 million ounces to 654 million ounces. This supply-demand mismatch has driven silver prices to rise significantly.
If you are planning to explore silver futures trading, you should keep track of such trends and the drivers behind them. While rising prices could mean potential gains, it is important to keep a tab of market volatility while creating a strategy for silver futures trading.
While silver futures trading offers numerous benefits, like hedging opportunities and diversification, it can also pose risks, including price volatility and over-leveraging. So, make sure to approach it with a sound trading strategy apart from having a good understanding of the futures trading segment.
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