Silver Futures Trading Basics

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Choice!
    Free Trading Education!
    Free Demo Account!
    Big Sign-Up Bonus!

  • Binomo
    Binomo

    Good Choice For Experienced Traders!!!

Silver Futures Trading Basics

Silver futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of silver (eg. 30000 grams) at a predetermined price on a future delivery date.

Some Facts about Silver

Silver is a soft, shiny and heavy metallic element with a brilliant white luster. A very ductile and malleable metal, its thermal and electrical conductivity is the highest of all known metals.

Besides being used as a store of value, other main uses of silver include applications in areas such as electronics, photography and as antiseptics. [Click here to learn about the various uses of Silver. ]

Silver Futures Exchanges

You can trade Silver futures at New York Mercantile Exchange (NYMEX) and Tokyo Commodity Exchange (TOCOM).

NYMEX Silver futures prices are quoted in dollars and cents per ounce and are traded in lot sizes of 5000 troy ounces .

TOCOM Silver futures are traded in units of 30000 grams (964.53 troy ounces) and contract prices are quoted in yen per gram.

Exchange & Product Name Symbol Contract Size Initial Margin
NYMEX Silver Futures
(Price Quotes)
SI 5000 troy ounces
(Full Contract Spec)
USD 6,400 (approx. 11%)
(Latest Margin Info)
TOCOM Silver Futures
(Price Quotes)
30000 grams
(Full Contract Spec)
JPY 108,000 (approx. 12%)
(Latest Margin Info)

Silver Futures Trading Basics

Consumers and producers of silver can manage silver price risk by purchasing and selling silver futures. Silver producers can employ a short hedge to lock in a selling price for the silver they produce while businesses that require silver can utilize a long hedge to secure a purchase price for the commodity they need.

Silver futures are also traded by speculators who assume the price risk that hedgers try to avoid in return for a chance to profit from favorable silver price movement. Speculators buy silver futures when they believe that silver prices will go up. Conversely, they will sell silver futures when they think that silver prices will fall.

Learn More About Silver Futures & Options Trading

You May Also Like

Continue Reading.

Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Choice!
    Free Trading Education!
    Free Demo Account!
    Big Sign-Up Bonus!

  • Binomo
    Binomo

    Good Choice For Experienced Traders!!!

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

An Introduction To Trading Silver Futures

After gold, silver is the most invested precious metal commodity. For centuries, silver has been used as currency, for jewelry, and as a long term investment option. Various silver-based instruments are available today for trading and investment. These include silver futures, silver options, silver ETFs, or OTC products like mutual funds based on silver. This article discusses silver futures trading—how it works, how it is typically used by investors, and what you need to know before trading.

The Basics

To understand the basics of silver futures trading, let’s begin with an example of a manufacturer of silver medals who has won the contract to provide silver medals for an upcoming sports event. The manufacturer will need 1,000 ounces of silver in six months to manufacture the required medals in time. He checks silver prices and sees that silver is trading today at $10 per ounce. The manufacturer may not be able to purchase the silver today because he doesn’t have the money, he has problems with secure storage or other reasons. Naturally, he is worried about the possible rise in silver prices in the next six months. He wants to protect against any future price rise and wants to lock the purchase price to around $10. The manufacturer can enter into a silver futures contract to solve some of his problems. The contract could be set to expire in six months and at that time guarantee the manufacturer the right to buy silver at $10.1 per ounce. Buying (taking the long position on) a futures contract allows him to lock-in the future price.

On the other hand, an owner of a silver mine expects 1,000 ounces of silver to be produced from her mine in six months. She is worried about the price of silver declining (to below $10 an ounce). The silver mine owner can benefit by selling (taking a short position on) the above-mentioned silver futures contract available today at $10.1. It guarantees that she will have the ability to sell her silver at the set price.

Assume that both these participants enter into a silver futures contract with each other at a fixed price of $10.1 per ounce. At the time of expiry of the contract six months later, the following can occur depending upon the spot price (current market price or CMP) of silver. We will walk through several possible scenarios.

In all the above cases, both the buyer/seller achieves buying/selling silver at their desired price levels.

This is a typical example of hedging—achieving price protection and hence managing the risk using silver futures contracts. Most futures trading is intended for hedging purposes. Additionally, speculation and arbitrage are the other two trading activities which keep the silver futures trading liquid. Speculators take time-bound long/short positions in silver futures to benefit from expected price movements, while arbitrageurs attempt to capitalize on small price differentials that exist in the markets for the short term.

Real World Silver Futures Trading

Although the above example provides a good demo to silver futures trading and hedging usage, in the real world, trading works a bit differently. Silver futures contracts are available for trading on multiple exchanges across the globe with standard specifications. Let’s see how silver trading works on the Comex Exchange (part of the Chicago Mercantile Exchange (CME) group).

The Comex Exchange offers a standard silver futures contract for trading in three variants classified by the number of troy ounces of silver (1 troy ounce is 31.1 grams).

  • full(5,000 troy ounces of silver)
  • miNY (2,500 troy ounces)
  • micro (1,000 troy ounces)

A price quote of $15.7 for a full silver contract (worth 5,000 troy ounces) will be of total contract value of $15.7 x 5,000 = $78,500.

Futures trading is available on leverage (i.e., it allows a trader to take a position which is multiple times the amount of the available capital). A full silver futures contract requires a fixed price margin amount of $12,375. It means that one needs to maintain a margin of only $12,375 (instead of the actual cost of $78,500 in the above example) to take one position in a full silver futures contract.

Since the full futures contract margin amount of $12,375 may still be higher than some traders are comfortable with, the miNY contracts and micro contracts are available at lower margins in equivalent proportions. The miNY contract (half the size of the full contract) requires a margin of $6,187.50 and the micro contract (one-fifth the size of a full contract) requires a margin of $2,475.

Each contract is backed by physical refined silver (bars) which is assayed for 0.9999 fineness and stamped and serialized by an exchange-listed and approved refiner.

Settlement Process for Silver Futures

Most traders (especially short term traders) usually aren’t concerned about delivery mechanisms. They square off their long/short positions in silver futures in time prior to expiry and benefit by cash settlement.

The ones who hold their positions to expiry will either receive or deliver (based on if they are the buyer or seller) a 5,000-oz. COMEX silver warrant for a full-size silver future based on their long or short futures positions, respectively. One warrant entitles the holder the ownership of equivalent bars of silver in the designated depositories.

In the case of miNY (2,500-ounce) and micro (1,000-ounce) contracts, the trader either receives or deposits Accumulated Certificate of Exchange (ACE), which represents 50 percent and 20 percent ownership respectively, of a standard full-size silver warrant. The holder may accumulate ACE’s (two for miNY or five for micro) to get a 5,000-ounce COMEX silver warrant.

Role of the Exchange in Silver Futures Trading

Forward trading in silver has been in existence for centuries. In its simplest form, it is just two individuals agreeing on a future price of silver and promising to settle the trade on a set expiry date. However, forward trading is not standard. It is therefore full of counterparty default risk. (Related: What Is the Difference Between Forward and Futures Contracts?)

Dealing in silver futures through an exchange provides the following:

  • Standardization for trading products (like the size designations of full, miNY or micro silver contracts)
  • A secure and regulated marketplace for the buyer and seller to interact
  • Protection from a counterparty risk
  • An efficient price discovery mechanism
  • Future date listing for 60 months forward dates, which enables the establishment of a forward price curve and hence efficient price discovery
  • Speculation and arbitrage opportunities that require no mandatory holding of physical silver by the trader, yet offer the opportunity to benefit from price differentials
  • Taking short positions, both for hedging and trading purposes
  • Sufficiently long hours for trading (up to 22 hours for silver futures), giving ample opportunities to trade

Market Participants in the Silver Futures Market

Silver has been an established precious metal in dual streams:

• It is a precious metal for investment

• It has industrial and commercial uses in many products

This makes silver a commodity of high interest for a variety of market participants who actively trade silver futures for hedging or price protection. The major players in the silver futures market include:

Futures Basics & Essentials: The Beginners Guide to Trading Silver Futures

Are you new to trading Silver futures or seeking additional guidance?

Download this informative guide designed to help you understand silver futures, and how you can trade these precious metal instruments! This eBook was created for those who seek to understand where the professionals trade precious metals, how futures contracts work, and details of the margins and market hours.

Specifically, your guide will cover:

  • The value of silver futures contracts and its worth in dollar terms
  • Contract specifications for full, mini, and micro silver contracts
  • Difference between silver futures and silver ETFs

Download this complimentary Beginners Guide for free!

Please complete the form below. The fields marked with an (*) are required.

Your privacy is important to us.
Please review our Privacy Policy.

Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the “risk disclosure” webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Choice!
    Free Trading Education!
    Free Demo Account!
    Big Sign-Up Bonus!

  • Binomo
    Binomo

    Good Choice For Experienced Traders!!!

Like this post? Please share to your friends:
Binary Options Trading Guide
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: