How to Trade Silver for Shiny Returns
- 1). First, investors need to understand how a silver contract trades because commodities trade differently than stocks. In a standard account, one silver contract gives the investor control over 5,000 troy ounces of the metal. The minimum daily price movement is 5 cents per troy ounce or $25 per contract.
In a mini account, the investor controls 1,000 troy ounces and the minimum price movement is 1 cent per ounce or $1 a contract. Regardless of the account, silver cannot rise or fall more than $25 an ounce in a single trading day.
- 2). Investing in commodities isn't for every investor. For those wanting exposure to the silver industry without the risk of a commodities contract, there are dozens of publicly traded silver stocks. These companies are involved in the mining of silver. And for ETF investors there are silver ETFs. The predominant one is the SLV, which tracks the daily performance of silver futures.
- 3). No matter how an investor decides to trade silver, gold prices must be watched because the correlation between the metals is strong. Some economists have theorized that gold and silver should trade at a ratio that reflects their supply in relation to each other. Since there is about 16 times as much silver in the world as there is gold, gold should be worth 16 times as much. While this particular ratio is rarely reached, silver prices do track gold prices. When gold rises, silver is likely to follow suit and if gold falls, silver won't be far behind.
- 4). Yet another way to trade silver is on inflation concerns. Gold is known as the primary investor hedge against increasing inflation, but silver is next on the investor list of ways to profit when inflation surges.