Don’t just wear silver, invest in it!
Throughout history, silver has been used as a form of money due to its shiny, malleable properties. While more common than gold, silver has had a good run in being a favored trading commodity and enjoys high demands due to its diversified uses. Shrewd investors are also looking towards silver and other precious metals to further diversify their portfolio.
Silver is used as both an industrial metal and a hard asset and relies heavily on market needs and demands. Commonly used for jewelry, silverware and electronics, due to its malleable nature, it is usually combined with other types of hard metals such as copper.
Trade physical silver or with futures contracts
While some investors may enjoy acquiring silver bars from banks or traders, for the rest of investors who are less comfortable with holding physical precious metals, the most common way to successfully trade silver is with future contracts. Commodities are traded based on margin and the margin changes based on the face value of the market and market sentiments. Different margins are required for different exchanges, notwithstanding currency exchange rates.
The most important rule for silver trading is calculating the change in price and size of the contract denoted in troy ounces. Depending on the investors’ position of going long, when prices are expected to rise or short, when prices are expected to fall, investors can mitigate their risk portfolio level. In a silver contract, a 1% change is equivalent to $50. Calculating between the contract price and exit price factored by the 1% change gives you the profit or loss figures incurred.
Futures contracts for silver is traded at several exchanges including then New York Mercantile Exchange (NYMEX), Dubai Gold and Commodities Exhange and Tokyo Commodity Exchange (TOCOM) but to name a few. Exchange Traded Funds (ETF) has made it relatively easy to trade silver, although there is no silver ETF that trades on the Singapore Exchange. As such, investors would have to turn to other exchanges as previously mentioned. Commodity ETFs track indexes reflecting futures prices however, ETF shares trades at a specified margin of the barrel price instead of the actual price but moves in tandem with the percentage gains of the commodity.
Another way of getting involved in silver trading is by investing in equities of companies that has exposure to hard metals. While most companies have diversified portfolios for several hard metals, there remains few which trade primarily in silver. Investors should be wary in that when investing in equities of companies with exposure to commodities, further consideration needs to be taken into account such as management, business model, diversification and balance sheet of the company. These funds are collectively pooled together and invested by professional fund managers that amalgamate several financial products to achieve the fund’s financial objectives.
Since the onset of the financial crisis in 2008, silver and other precious metal prices have enjoyed increasing global demand due to its high intrinsic value. Investors have also contributed to the steadily increasing silver prices that are stored as long-term hedges against inflation.