Silver Commodities Trading

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Introduction

Silver

 

Commodities markets have a global reach.

But has it reached you yet?

Would you like to participate in trading silver?

If so, then this article is for you.

Sit back, relax, and prepare your mind to accept knowledge.

 

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96

Silver Page

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plus500 logo

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  • Competitive spreads for silver trading
  • Trading with as little as $100
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  • Risk management tools
  • Fully regulated by the FCA, CySEC and ASIC

Min Deposit: $100

Regulation: FCA, ASIC, CySEC

 

95

Silver Page

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76.4% of retail CFD accounts lose money

avatrade logo

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  • Up to 1:50 leverage on silver
  • Available on AvaTradeAct and MetaTrader 4 platforms
  • Trade for as little as $100
  • Live multilingual customer support during market hours
  • Regulated

Min Deposit: $100

Regulation: CBI, ASIC, FSC, FSA, FSB

 

94

Silver Page

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24option logo

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  • Intuitive platform for trading silver
  • Competitive spreads
  • Comprehensive education centre
  • User-friendly functions
  • Fully regulated by the CySEC and IFSC

Min Deposit: $200

Regulation: CySEC, IFSC

 

92

Silver Page

Open Account

xm.com logo

Read Review

  • Tight spreads for silver commodities
  • Trade on a margin of as low as $5
  • No overnight financing
  • $5 minimum deposit
  • Unlimited demo account

Min Deposit: $5

Regulation: FCA, ASIC, CySEC

 

90

Silver Page

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Trading Forex and CFDs involves significant risk of capital loss. You should consider whether you can afford to take the high risk of losing your money.

 

In general…

Commodities are raw materials that could be traded in the marketplace; and this has been going on for quite some time.

 

Nowadays, trading is being done electronically.

And these commodities are likely to be used as inputs to create end-products such as goods.

Since they are being traded in the marketplace, the prices of these commodities often fluctuate due to the supply-demand dynamics and/or changes in public sentiment.

Trading silver commodities

Trading silver commodities

The supply-demand imbalance in the market can be described as:

If there’s a relative increase in the demand of a good or service, but the supply does not – or even decreases, then buyers have to know purchase that good or service at a higher price (in order to avail of that); thus making the market price of good/service go higher.

Inversely…

If there’s an increase in the supply of that good or service, yet the demand does not – or even decreases, then the would-be sellers have to now sell that good/service at a lower price to attract buyers. Thus this makes the market price of that good/service go lower.

 

So how is silver performing these days? Check out this chart showing the price of this precious metal from several years ago up to now:

 

 

Look:

Silver, like any other commodity, could be traded as spot contracts (which mean immediate exchange upon settlement) or as future contracts (the prices are determined in order to deliver a certain quantity at a later date).

Silver remains to be one of the most commonly traded commodities today.

Just like other commodities, silver trading is being facilitated on exchanges. These aforementioned exchanges are platforms for trading participants to exchange cash for assets and also vice versa.

Participants are made to follow rules and procedures in order ensure the fairness and an orderly process for the participants to trade contracts and other relevant products (like CFDs, derivatives, options, etc.).

 

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Silver 101

Silver is a precious metal that is used in silverware, electronics, jewelry, and currencies.

This commodity has been traded for thousands of years, and still remains to be one of the commodities which attract wide participation.

Due to silver’s popularity on being traded, this creates sufficient volatility for traders to have profit opportunities regardless of the price’s general direction.

Participants could participate in silver’s price movements by buying and selling either:

  • Spot contracts – the contract’s price reflects the current price of silver in the market; or
  • Futures – the contract’s price reflects the price in which the buyers are willing to pay for that particular silver contract on a specified future delivery date.

Do note however that:

The futures contract’s price is not a guarantee that silver will be able to achieve that price upon the pre-determined date, but instead is employed as a hedge (to manage risk), or as an opportunity to speculate of which direction the prices will be in the future.

 

Silver derivatives

Market participants could also adopt silver derivative instruments as avenues to gain profits.

These financial instruments are derived from the price of silver as the base asset.

Such instruments are also contracts, or agreements among the buyers and the sellers, and their respective prices are then determined based on the prices of the underlying commodity.

 

Silver CFD

CFDs, or Contracts for Differences, are examples of the aforementioned derivatives.

They are contracts where the settlement of the opening and closing prices are to be resolved in cash.

How does it work?

They are agreements between the buyers and sellers to have the difference in valuation exchanged between the contract’s price when it was opened and the contract’s price upon closing.

 

In addition:

CFDs are also favorable to silver traders because they offer profit opportunities regardless of the silver price’s general direction. Traders can go long (buy) if they have an opinion that the price of silver will go up, or go short (sell) if their opinion’s that the price of silver will go down in the future.

 

Are you now interested in CFDs as well?

You should as trading CFDs is quite simple to do.

You simply choose the broker that you think would be the best for you, and create an account with them.

 

Next…

Then on their platform, find the area where the trading feature is at. It generally has all the components necessary to facilitate trading.

Related information also tends to be found in the same screen. Then select Silver from the list of instruments that could be traded.

Silver trading on Plus500's platform

Silver trading on Plus500’s platform

Illustrative prices only.

 

Remember this:

Check out their price charts and analyze which direction silver price will goes to in all likelihood.

And then you may proceed to go long or short as you see fit.

And don’t forget:

Manage your open trade by taking profits, protecting gains, or even cutting losses if your trade goes against you.

 

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These highly-reputable brokers listed here offer some of the best features in the industry.

And how can you benefit from these?

They also offer the most competitive price spreads (to avoid slippage), and most definitely, their platforms are stable.

For fundamental and the macroeconomic aspect, they also feature the latest market news and also show the financial calendars in order for their clients to be kept updated and always be guided when they are making their decisions.

What’s more…

Their platforms also feature price charts (especially helpful for technical analysts) and are also likely to have price alerts, in order for their clients not to miss important price movements.

And last but definitely not the least…

These brokers are regulated by various institutions that are based in different areas in the world.

Hence, they could cater to global clients.

 

Silver options

Options are yet another form of derivative.

Silver options are financial instruments whose market prices are based on the prices of the underlying instrument, which in this case is silver.

An options contract gives the holder the right, but not the obligation, to buy or sell the underlying asset (silver).

If the bet is that the prices are to rise in the future then a call option is the appropriate one to purchase, as it means that the buyer has the right, but not the obligation, to purchase the silver at the agreed-upon price.

Otherwise…

If the bet is that the prices are to fall in the future then a put option is the appropriate one to purchase, as it means that the buyer has the right, but not the obligation, to sell silver at the agreed-upon price.

The agreed-upon price is called the strike price.

These contracts have an expiration date on when the buyer ought to exercise that option.

If the trader bets that the price of silver is likely to go up within the next 9 months (based on his analysis), then he could purchase call options, instead of silver contracts outright.

If the bet goes wrong, then his risk would be limited to the price that he paid for his options contracts.

Hence, it is a form of risk management as well.

 

For example:

On May 2019, trader Michael took a long call position on December 2019 silver options. The strike price was 15.50 USD.

On September 4 ,2019, with the spot price reaching 19.30 USD, Michael would now like to execute his call options by entering into a long position at a price of 15.50 USD.

Michael could wait for the expiration to occur and accept the delivery at that agreed-upon price of 15.50 USD or he could also opt to close his position at a gain of 3.80 USD (19.30-15.50).

End result:

His total profit would be 3.80 USD multiplied how many units were in that silver options contract that he purchased back then.

 

Silver ETF

ETFs for silver also exist, one of which is the iShares Silver Trust.

There are different silver ETFs – those that trade or buy silver bullion or those representing the silver miners.

Exchange traded funds are a means to diversify and not be directly exposed to the volatility of the asset’s price.

 

Trading silver with leverage

Leveraging is an act of borrowing capital with the aim of increasing the possible return of your trade.

Employing leverage enables traders to trade larger amounts of contracts even if their available capital is small. Most brokers have this margin feature so that their clients could borrow the necessary to add to their capital.

Please take note that leverage always works both ways.

It could vastly increase the gains if your thesis is correct but it also could add to the losses at the same degree, if the thesis was proven to be wrong.

Hence…

It is NECESSARY to always manage your risk.

 

How to analyze silver trading decisions?

The outcome of your trades (whether gains or losses) are definitely not guaranteed.

This is because the market dynamic keeps on changing, mainly caused by the continuous interaction of buyers and sellers all around the globe.

These numerous transactions make the ebb and flow of the market continuous and the outcomes uncertain.

Hence, it is a good practice to have a process in place, as it would be the only thing that you could control.

 

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Guidelines on decision analysis could be categorized into two trains of thought: fundamental analysis and technical analysis.

Fundamental analysis tackles the fundamental causes of what might make the silver price move.

It is based on the identification of supply and demand imbalances.

Macroeconomic factors and geo-political could also be used as guidelines for your trading decisions that are based on fundamental analysis.

For example:

If Mexico, a silver-producing country a ban in silver exports, then that might make silver’s market price rise price as there is now an imbalance in supply.

 

On the other part of the spectrum…

Technical analysis is the study of price action and volume history.

An important assumption is that the relevant information that is needed to make informed decisions is already reflected in the price.

And that includes the news, macroeconomic factors, and other information that may not be publicly known yet.

The chart below is a weekly chart. Even though, the data points need to take a week to form, hence slower information and slower trading activity, this timeframe eliminates much of the noise that are present in smaller-timeframe charts.

 

It shows that the silver price is trying to establish a support at 16.50, and its stochastics at the oversold level.

But it also shows that there’s resistance directly above and the momentum is not there yet, given that the faster moving average line (10-period moving average) is below the 20-period moving average.

It is currently challenging the immediate supply zone – the supply represented by the 20-period moving average might provide the resistance.

If this 16.50 level would not hold, the next support zone is at the 15.70 to 16USD area.

It is a good practice to buy on support (where the demand is at), and sell some at the immediate resistance (where the supply is at), or just provide trail stops.

However…

A popular strategy is the momentum strategy, wherein momentum traders do not buy at support, but instead buy when the resistance is broken.

Silver weekly trading

Silver weekly trading

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Remember:

Whatever personal style you’d employ or whether you prefer fundamental over technical analysis – or vice versa, it is imperative to have risk management rules in place (cutting losses when the price action is adverse, diversification, etc.).

 

How to trade silver using CFDs

Now that the basic parts have been more or less likely been explained, let us see how the bigger picture looks like in the challenging, yet rewarding world of CFD trading.

But first, let us brush up our knowledge on some of the terms that we might be seeing along the way.

  • Support (Support zone) – This is an area where greater-than-usual demand is present. Those who would like to buy silver think that the price level is low enough and they are now willing to buy and consume the contracts or shares (supply) that the sellers have been selling.If the price is already at that level wherein the buyers (demand) are greater in number than the sellers, then the price of silver is not likely to go any lower (for the time being).

    This will then attract more buyers (further increase in demand), thus making silver’s market price further increase.

  • Resistance (Resistance zone) – This is an area where greater-than-usual supply is present. Those who were/are willing to buy silver think that the price level is already expensive and will not buy any more at this price level.And those who are sellers when they see that there aren’t sufficient buyers anymore would be selling their shares or contracts at this price, or go lower to attract the scarce buyers.

    If the price is already at a level wherein the sellers (supply) are greater in number than the buyers (demand), then the price of silver is unlikely to go any higher (for the time being).

    This will then attract more sellers (further increase in supply), thus making silver’s market price further decrease.

  • Moving average – This is a technical analysis indicator which aims to “smoothen out” the closing prices. It is a dynamic average of the closing prices of a pre-determined number of days.Traders who prefer shorter-term are likely to use a range of 5 to 10 days as their moving average period.

    Traders who prefer the intermediate term are likely to use 20 days as their indicator period value.

    How to use it?

    If the price is above the moving average line, then demand is present and silver’s price is likely to move upwards. Inversely, if the price is below the moving average line, then supply is still greater and silver’s price is likely to continue downwards.

  • Go long – Also known as Buy. If the analysis says that the price will likely go higher, then the trader will go long and the trader could later sell at a higher price and profit.
  • Go short – Also known as Sell. If the analysis says that the price will likely go lower, then the trader will go short and the trader could later buy at a lower price and profit.

 

Now that the basic principles have been defined, let us further look at the process using the example below:

Looking back:

2016 was a year filled with macroeconomic headlines, like Brexit.

Brexit

Brexit

Other contributing fundamental factors to have likely contributed during the rise of silver’s price in the first half of 2016 were the US dollar hitting an 8-month low, interest rate updates from the US Fed, and there was also an increase of demand from the Chinese buyers.

These macroeconomic catalysts imply that the demand for metals, i.e. silver has increased given the uncertainty in other asset classes.

Hence…

If the demand increased while the supply remained the same or decreased, then the prices could likely continue to rise.

Let us focus on two points in the chart:

Kindly look at the chart on the early days of June 2016 (point A), the price was currently hovering at the support area (wherein we previously learned that there are buyers present at that area).

So let’s get started…

If the buying participants outnumber the selling participants, then the price will likely not go further lower, and as more buyers will observe that price action then that will attract them, hence making the price move further higher.

At point A, when you see that the market price is at the support zone, and is also increasing, you then might log in to your favorite broker’s platform, then select CFD trading and look for silver from the array of available financial instruments, and buy (or go long) that CFD.

Here’s the deal:

You could close the trade later when you see that the price stopped rising and is currently at the resistance zone (around July 2016), then book your profit.

Now let us look at point B. The price was already near a known resistance area (where we previously learned that there are sellers present at that area).

If the selling participants outnumber the buying participants, then for the time being at least, the price will likely not go further higher, and as more sellers would have observed that price action, then that will attract them, hence making the price move further lower.

At point B, we see that the market price is at the resistance zone and is not advancing, instead, it was just ranging or having no direction, then when you see that, you could log in to your favorite broker’s platform, then select CFD trading and look for silver from the array of available financial instruments, and sell (or go short) that CFD.

You could close the trade later when you see that the price is back near the support zone again (around December 2016), then book your profit.

 

Kindly always bear in mind:

You need to practice risk management principles, like closing the trade immediately even at a small loss, if price is acting adversely to your plan and expectation.\

In general…the process of trading CFDs is relatively simple, right?

Just click on the instrument and proceed with the action as what your analysis has advised you to do.

Silver daily trading

Silver daily trading

Start trading silver with eToro!

62% of retail CFD accounts lose money.

 

Are you now convinced to start trading silver and be part of a global community of market participants?

 

Then what are you waiting for?

Sign-up now with any of these well-respected and regulated brokers, and cherish the opportunity to learn and profit from silver price movements.

 

Trusted and Regulated Brokers Where You Can Trade Silver CFDs

BrokerFeaturesRatingOfficial Site
etoro logo

Read Review

  • Copy investment portfolios of top silver traders
  • Practice with a free demo account
  • No overnight fees
  • Risk management tools

Min Deposit: $200

Regulation: CYSEC, FCA

 

96

Silver Page

Open Account

62% of retail CFD accounts lose money

plus500 logo

Read Review

  • Competitive spreads for silver trading
  • Trading with as little as $100
  • Negative balance protection
  • Risk management tools
  • Fully regulated by the FCA, CySEC and ASIC

Min Deposit: $100

Regulation: FCA, ASIC, CySEC

 

95

Silver Page

Open Account

76.4% of retail CFD accounts lose money

avatrade logo

Read Review

  • Up to 1:50 leverage on silver
  • Available on AvaTradeAct and MetaTrader 4 platforms
  • Trade for as little as $100
  • Live multilingual customer support during market hours
  • Regulated

Min Deposit: $100

Regulation: CBI, ASIC, FSC, FSA, FSB

 

94

Silver Page

Open Account

24option logo

Read Review

  • Intuitive platform for trading silver
  • Competitive spreads
  • Comprehensive education centre
  • User-friendly functions
  • Fully regulated by the CySEC and IFSC

Min Deposit: $200

Regulation: CySEC, IFSC

 

92

Silver Page

Open Account

xm.com logo

Read Review

  • Tight spreads for silver commodities
  • Trade on a margin of as low as $5
  • No overnight financing
  • $5 minimum deposit
  • Unlimited demo account

Min Deposit: $5

Regulation: FCA, ASIC, CySEC

 

90

Silver Page

Open Account

Trading Forex and CFDs involves significant risk of capital loss. You should consider whether you can afford to take the high risk of losing your money.