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Silver Futures Trading: Know the Basics, Advantages & Risks

02 Jan 2022 0 COMMENT

Introduction

Among precious metals, gold and silver are considered to be most popular. They have been in use for many centuries as currency, jewelry, and as an investment option. Investing in silver Futures is also becoming an integral part of financial planning today.

What are Silver Futures?

Silver Futures is a contract between a buyer and seller to execute a transaction in the commodity. This is done by making an initial payment and signing an agreement to schedule the delivery on a later date.

Supply and demand of silver

While most silver is sourced from mines, a small part of it comes from the recycling of scrap. There is always a demand for silver. Aside from jewelry, silver is predominant in industrial applications. It is used in the form of electrical components, electronic products, solar cells, fabrication, and in the fashion industry.

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Silver trading

Silver is available for trading on MCX. There are four variants of silver contracts:

Contracts

Lot Size

Expiry

Silver Futures

30 kgs

5th day of the expiry month

Silver Mini Futures

5 kgs

Last day of the expiry month

Silver Micro Futures

1 kg

Last day of the expiry month

Silver 1000

1 kg

Last day of the expiry month

Who decides the rate of silver?

The price of silver is determined by international prices and currency movement, that is, the rupee vs the dollar. If the value of the rupee falls against the dollar, silver will become more expensive. Speculative positions in the trading market also influence the price of silver.

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Advantages of silver trading

Demand – The use of silver for industrial purposes improves the value of the metal.

Payment – You get additional time for the final settlement. This is because a contract is signed on one date and delivery takes place at a pre-decided future date.

Flexibility – A trader has provision to short sell silver.

Safe haven – Silver as an investment is considered to be safe because it is valued as real money.

Liquidity – Silver is adequately liquid on offer.

Risks of silver trading

Volatility – Economic slowdowns can alter silver prices, which can lead to losses.

Shifts – If silver is replaced by another element in its industrial usage, its value will drop significantly.

Limited prospective – As a tangible commodity, it only offers benefits when you sell during a period of a rise in its price.

Risk – There is a probability of default risk during such trades.

Price movement – Since silver is used in various industries, its price can fluctuate widely.

Conclusion

Silver is more affordable than gold, and is a practical investment option which has the potential to be very profitable. However, unprecedented demand from various industries across the globe can lead to a slight deficit. This, in turn increases the risk of price fluctuations while trading in this precious metal.

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Disclaimer:

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.