Silver trading engages a lot of risk. Find out risks involved as well as the basic before you decide to get into silver trading.

Silver trading will glitter in your basket of financial investment with its spectacular potential profits. In contrast to gold, the silver price is determined by store of value and requirement of silver in the industry. Gold doesn’t have industrial use. This is why silver is more volatile than gold and hence provides excellent trading opportunity for those who are equipped to handle it.

Where can you trade silver?

You can use silver trading as a hedge against the inflation. Most traders jump into trading commodities purely as a speculation play meaning that they are not interested in taking physical delivery but in taking profits in cash. Lot of exchanges offers trading of silver. CME and NYMEX are some common exchanges. Many brokers offer the commodities trading. Through the forex platform of the brokers, precious metals like silver and gold can be traded.

Different ways you can trade silver

Silver is traded mostly in futures. Variety of futures contracts is traded through the exchanges. A standard contract is composed of 5000 ounces and a mini contract is made up of 1000 ounces. If the current price of silver per ounce is $ 30 then one standard contract will be worth $ 150,000 and mini contract will be of value $ 30,000. The tick size for the silver trading is $ 0.001 per ounce which comes out to be $ 5 for standard and $ 1 for the mini contract. Trading in silver is suited for traders holding a big account. If you have a small account then a tick size of $ 1 will eat out a significant portion of your account as risk. To stay in the market longer and trade profitably you should risk only 2% of the money on a trade placed on silver.

Trading of silver is also possible through other financial instruments as well such as options. There are some exchange traded funds for silver. You can invest in them. Through the silver mining company stocks, you can trade silver indirectly. Their price fluctuates according to the silver price.

Silver trades in a cyclic nature. As it is useful in the industry, its demand will go down when there is economic slowdown while the demand will go up when the economy is in healthy state. As the demand goes up or down, the price of silver goes up or down. A study of broader economic picture is useful for silver trading.

Aspects that can move the silver prices

Currencies can be a sign of the silver price in the future. Mexico is the second largest producer of silver. So a large portion of silver in the world is bought or sold through Mexican currency which is Peso. There is a strong interconnection between silver and Mexican Peso. The Mexican Peso will follow the rise or fall in the silver prices. This presents a unique opportunity to arbitrage silver trading. The price of gold is also a good indication of the price of silver. These two precious metals are also strongly correlated. A fall in gold price is usually followed or accompanied by fall in silver price. Some economist claim that the price of silver should be one sixteenth of the price of gold as the amount of gold found is equal to the one sixteenth of the amount of available silver.

Silver trading is a high risk speculative play. If silver is traded with little information about the basics of commodities, it will be destructive to your wealth. Proactive ignorant trading will erode your account. Trading on a demo account first is a wise move.