Categorised as a metal commodity, silver is one of the oldest and most popular assets to trade, along with gold, due to its ability to hold its value.
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Alternatively, continue reading to learn about the history of the silver trade and the factors that affect its price.
Trading silver essentially involves speculating on the future price of the commodity to gain a profit from market movement.
Historically, trading silver meant buying and owning physical silver bullions, bars or coins, and then selling them at a later date. But nowadays, most silver trades tend to take place via online trading methods that track the price of the commodity, rather than you having to actually own it.
Silver was first mined around 2500 BCE and was a sought-after commodity around the world. The global silver trade dominated the market for many years but it wasn't until the advancement of Roman civilisation that the commodity started to be used as a form of currency.
Coins then became the standard of international trade and, as the USA began to mint silver, the significance of the metal grew. Silver reigned as the number-one precious metal until the establishment of the 'gold standard' in 1875. As the US dollar adopted gold as its benchmark, silver lost its status and thus some of its value.
Nowadays, silver has many uses including in jewellery, silverware, in a vast array of electronic equipment as a conductor and even in solar panels.
Despite being regarded as the second-best precious metal, below gold, silver remains a popular commodity. Because of its vast array of uses and the fact that it is a more affordable asset than gold, silver trading is still one of the most common practices in the commodity markets.
Although it's less expensive than gold, buying silver as a commodity is still regarded as a 'safe haven' investment so, in times of economic uncertainty, this asset can become particularly sought-after in otherwise volatile market conditions.
The gold-silver ratio is the standard measurement used by gold and silver traders that shows the value of one in relation to the other, based on their spot prices. Because gold has always been of higher value than silver, the ratio is based on how much silver it would take to buy an ounce of gold.
As an example, if the ratio is 10:1, then 10 ounces of silver would be worth one ounce of gold. This ratio can fluctuate greatly and many of those wishing to trade silver or gold will take into account this value.
In a bull market, where prices rise, the ratio generally falls. In a bear market, however, where prices fall, the ratio tends to rise. This is because gold experiences significant demand as traders look to invest in historically safe commodities with a high intrinsic value, to hedge against inflation and uncertainty.
Savvy silver traders look to buy the commodity when the ratio is high and the price of silver is cheaper in comparison to gold. Selling ideally takes place when the gold-silver ratio is low.
Take a look at our guide on how to trade gold for more information.
There are a variety of ways to place silver trades and the one (or ones) that you choose will depend on your trading preferences. While historically you'd have to buy and sell actual bullions or coins, it's now easier than ever to trade silver by simply tracking the underlying value and speculating on the future price via derivatives.
Please note you cannot trade spot, futures or options with Tradu; their inclusion here is for informational purposes only.
Silver trading can take place via futures, which are contracts whereby an agreement is made to buy or sell the commodity at a set price on a particular future date. They can involve the actual transfer of the physical asset or a cash settlement.
With futures, both the buyer and seller have an obligation to carry out the trade, although a position can be rolled over to the next expiry date.
Trading silver options means that you have the right to buy or sell the underlying asset at a set price but not an obligation. When the value of silver moves past that set point over a certain time frame, you then have the option to buy or sell.
You'll pay a premium to buy the option but, because you're speculating on the future price, your goal is to make a profit once the value moves.
The spot price refers to the current silver trading value and buying 'on the spot' allows traders current market exposure without having to own the asset. Investors, however, might use spot prices and take immediate delivery of the physical asset.
The spot price of commodities, including silver, often fluctuates dramatically, so this method is often preferred by those looking to day trade silver or traders interested in very short-term positions.
Silver and other precious metals can also be traded via company stocks. This can be through companies that are involved in silver mining or production.
Stocks are a popular method of investing in this metal commodity and are viewed as a longer-term option.
CFDs (contracts for difference) are popular way to speculate on the future market price of silver. They are classed as derivatives, which means that you can trade both long or short, depending on whether you think the value will rise or fall.
With CFDs, you either buy or sell a contract to trade silver (depending on if it's a long or short position) and, if the price moves in your favour, you'll make a profit per point. If it moves in the opposite direction, however, you'll make a loss.
Leverage can be used with CFDs, meaning that you can open a position with a smaller deposit but still have exposure to larger positions. While this can increase your profit should the trade move in your favour, it can also magnify any losses.
While both silver traders and investors have the same goal of making a profit, they're actually two different methods of making money on the value of the metal commodity.
Investors typically aim to hold their position over longer periods than traders and, in some cases, take ownership of the underlying commodity. Traders, on the other hand, generally open shorter-term positions and trade the value of the underlying asset, rather than taking delivery of the product.
Investors prefer to use methods such as company stocks and shares, which can, in some cases, allow them dividends and voting rights. They also look to benefit from larger profits, especially if holding them for a significant number of years.
With many online silver trading opportunities available, traders can choose from a variety of methods to suit their preferences and look to make smaller gains more frequently.
Multiple strategies can be applied to silver trading, many of which take into account fundamental and technical analysis.
As the name suggests, this involves using trends to determine your trade. Technical indicators are commonly used to analyse past trends, predict the market direction and execute a silver trade accordingly.
The moving average, average directional index and relative strength index are often applied as indicators when assessing the uptrends and downtrends of silver.
When silver is not showing any clear signs or strength of a trend, the value moves between support and resistance levels, also known as a sideways trend.
Unlike trend trading, this can be a useful strategy for those looking to make a profit from smaller price movements in any market direction, from holding either a long or short position.
As mentioned, the value and market trend of gold is a vital factor to take into consideration when trading silver.
Using the gold-ratio trading strategy involves monitoring the price of gold and the current ratio, and entering a position if it changes significantly. However, while it's a good idea to keep track of the ratio, it's also wise to use this strategy alongside others to identify the best opportunities.
Periods of high liquidity are considered the best time to trade silver as it offers a greater chance of making a profit. However, high liquidity, along with volatility, can increase trading volume in the market which, although creates opportunities, can also put you at risk of greater loss when trading silver.
Silver can either be traded online or via exchanges around the world.
Many factors can affect the value of silver in the commodity market. These include:
Trading any asset or market comes with its advantages and disadvantages, and silver is no different.
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