Commodities markets have a global reach.
But has it reached you yet?
Would you like to participate intrading silver?
If so, thenthis article is for you.
Sit back, relax, and prepare your mind to accept knowledge.
In general...
Commodities are raw materials that could be traded in the marketplace; and this has been going on for quite some time.
Nowadays, trading is being done electronically.
And these commodities are likely to be used as inputs to create end-products such as goods.
Since they are being traded in the marketplace, the prices of these commodities often fluctuate due to thesupply-demand dynamicsand/or changes in public sentiment.
The supply-demand imbalance in the market can be described as:
If there's a relativeincrease in the demandof a good or service, but the supply does not – or even decreases, then buyers have to know purchase that good or service at a higher price (in order to avail of that); thusmaking the market price of good/service go higher.
Inversely...
If there's anincrease in the supplyof that good or service, yet the demand does not – or even decreases, then the would-be sellers have to now sell that good/service at a lower price to attract buyers. Thusthis makes the market price of that good/service go lower.
So how is silver performing these days? Check out this chart showing the price of this precious metal from several years ago up to now:
Look:
Silver, like any other commodity,could be traded as spot contracts(which mean immediate exchange upon settlement)or as future contracts(the prices are determined in order to deliver a certain quantity at a later date).
Silver remains to be one of the most commonly traded commodities today.
Just like other commodities,silver trading is being facilitated on exchanges.These aforementioned exchanges are platforms for trading participants to exchange cash for assets and also vice versa.
Participants are made to follow rules and proceduresin order ensure the fairness and an orderly processfor the participants to trade contracts and other relevant products(like CFDs, derivatives, options, etc.).
Silver is a precious metal that is used in silverware, electronics, jewelry, and currencies.
This commodity has been traded for thousands of years, and still remains to be one of the commodities which attract wide participation.
Due to silver's popularity on being traded, this creates sufficient volatility for traders to haveprofit opportunitiesregardlessof the price's general direction.
Participants could participate in silver's price movements by buying and selling either:
Do note however that:
The futures contract's price isnot a guaranteethat silver will be able to achieve that price upon the pre-determined date, but instead is employed as ahedge(to manage risk), or as anopportunity to speculateof which direction the prices will be in the future.
Market participants could also adoptsilver derivative instruments as avenues to gain profits.
These financial instruments are derived from the price of silver as the base asset.
Such instruments are also contracts, or agreements among the buyers and the sellers, and their respective prices are then determinedbased on the prices of the underlying commodity.
CFDs, orContracts for Differences, are examples of the aforementioned derivatives.
They are contracts where the settlement of the opening and closing prices are to be resolved in cash.
How does it work?
They are agreements between the buyers and sellersto have the difference in valuation exchanged between the contract's price when it was opened and the contract's price upon closing.
In addition:
CFDs are also favorable to silver traders because they offerprofit opportunities regardless of the silver price's general direction.Traders cango long(buy)if they have an opinion that the price of silver will go up, orgo short(sell)if their opinion's that the price of silver will go down in the future.
Are you now interested in CFDs as well?
You just choose the brokerthat you think would be the best for you, and create an account with them.
Next...
Then on theirplatform, find the area where the trading feature is at. It generally has all the components necessary to facilitate trading.
Related information also tends to be found in the same screen. Then selectSilverfrom the list of instruments that could be traded.
Remember this:
Check out their price charts and analyze which direction silver price will goes to in all likelihood.
And then you may proceed to go long or short as you see fit.
And don't forget:
Manage your open tradeby taking profits, protecting gains, or even cutting losses if your trade goes against you.
These highly-reputable brokers listed here offer some of the best features in the industry.
And how can you benefit from these?
They also offer the mostcompetitive price spreads(to avoid slippage), and most definitely,their platforms are stable.
For fundamental and the macroeconomic aspect,they also feature the latest market news and also show the financial calendarsin order for their clients to be kept updated and always be guided when they are making their decisions.
What's more...
Their platforms also feature price charts(especially helpful for technical analysts)and are also likely to have price alerts, in order for their clients not to miss important price movements.
And last but definitely not the least...
These brokers are regulatedby various institutions that are based in different areas in the world.
Hence,they could cater to global clients.
Options are yet another form of derivative.
Silver options are financial instruments whose market prices are based on the prices of the underlying instrument, which in this case issilver.
An options contract gives the holder the right, but not the obligation, to buy or sell the underlying asset (silver).
If the bet is that the prices are to rise in the future then acall optionis the appropriate one to purchase, as it means that the buyer has the right, but not the obligation, to purchase the silver at the agreed-upon price.
Otherwise...
If the bet is that the prices are to fall in the future then aput optionis the appropriate one to purchase, as it means that the buyer has the right, but not the obligation, to sell silver at the agreed-upon price.
The agreed-upon price is called thestrike price.
These contracts have anexpiration dateon when the buyer ought to exercise that option.
If the trader bets that the price of silver is likely to go up within the next 9 months (based on his analysis), then he could purchase call options, instead of silver contracts outright.
If the bet goes wrong, then his risk would be limited to the price that he paid for his options contracts.
Hence,it is a form of risk managementas well.
For example:
On May 2019, trader Michael took a long call position on December 2019 silver options. The strike price was 15.50 USD.
On September 4 ,2019, with the spot price reaching 19.30 USD, Michael would now like to execute his call options by entering into a long position at a price of 15.50 USD.
Michael could wait for the expiration to occur and accept the delivery at that agreed-upon price of 15.50 USD or he could also opt to close his position at a gain of 3.80 USD (19.30-15.50).
End result:
His total profit would be 3.80 USD multiplied how many units were in that silver options contract that he purchased back then.
ETFs for silver also exist, one of which is theiShares Silver Trust.
There are different silver ETFs - those that trade or buy silver bullion or those representing the silver miners.
Exchange traded funds are a means to diversify and not be directly exposed to the volatility of the asset's price.
Leveraging is an act of borrowing capital with the aim of increasing the possible return of your trade.
Employing leverage enables traders totrade larger amounts of contracts even if their available capital is small.Most brokers have this margin feature so that their clients could borrow the necessary to add to their capital.
Please take note thatleverage always works both ways.
It could vastly increase the gainsif your thesis is correct butit also could add to the losses at the same degree, if the thesis was proven to be wrong.
Hence...
It is NECESSARY to always manage your risk.
The outcome of your trades(whether gains or losses)are definitely not guaranteed.
This is becausethe market dynamic keeps on changing, mainly caused by the continuous interaction of buyers and sellers all around the globe.
These numerous transactions make the ebb and flow of the market continuous and the outcomes uncertain.
Hence,it is a good practice to have a process in place, as it would be the only thing that you could control.
Guidelines on decision analysis could be categorized into two trains of thought: fundamental analysis and technical analysis.
Fundamental analysistackles the fundamental causes of what might make the silver price move.
It is based on the identification of supply and demand imbalances.
Macroeconomic factors and geo-political could also be used as guidelines for your trading decisions that are based on fundamental analysis.
For example:
If Mexico, a silver-producing country a ban in silver exports, then that might make silver's market price rise price as there is now an imbalance in supply.
On the other part of the spectrum...
Technical analysisis the study of price action and volume history.
An important assumption is thatthe relevant information that is needed to make informed decisionsis already reflected in the price.
And that includes the news, macroeconomic factors, and other information that may not be publicly known yet.
The chart below is a weekly chart. Even though, the data points need to take a week to form, hence slower information and slower trading activity, this timeframe eliminates much of the noise that are present in smaller-timeframe charts.
It shows that the silver price is trying to establish a support at 16.50, and its stochastics at the oversold level.
But it also shows that there's resistance directly above and the momentum is not there yet, given that the faster moving average line (10-period moving average) is below the 20-period moving average.
It is currently challenging the immediate supply zone – the supply represented by the 20-period moving average might provide the resistance.
If this 16.50 level would not hold, the next support zone is at the 15.70 to 16USD area.
It is a good practice to buy on support (where the demand is at), and sell some at the immediate resistance (where the supply is at), or just provide trail stops.
However...
A popular strategy is the momentum strategy, wherein momentum traders do not buy at support, but instead buy when the resistance is broken.
Remember:
Whatever personal style you'd employ or whether you prefer fundamental over technical analysis – or vice versa,it is imperative to have risk management rules in place(cutting losses when the price action is adverse, diversification, etc.).
Now that the basic parts have been more or less likely been explained, let us see how the bigger picture looks like in the challenging, yet rewarding world of CFD trading.
But first, let us brush up our knowledge on some of the terms that we might be seeing along the way.
This will then attract more buyers (further increase in demand), thus making silver's market price further increase.
If the price is already at a level wherein the sellers (supply) are greater in number than the buyers (demand), then the price of silver is unlikely to go any higher (for the time being).
This will then attract more sellers (further increase in supply), thus making silver's market price further decrease.
Traders who prefer the intermediate term are likely to use 20 days as their indicator period value.
How to use it?
If the price is above the moving average line, then demand is present and silver's price is likely to move upwards. Inversely, if the price is below the moving average line, then supply is still greater and silver's price is likely to continue downwards.
Now that the basic principles have been defined, let us further look at the process using the example below:
Looking back:
2016 was a year filled with macroeconomic headlines, likeBrexit.
Other contributing fundamental factors to have likely contributed during the rise of silver's price in the first half of 2016 were the US dollar hitting an 8-month low, interest rate updates from the US Fed, and there was also an increase of demand from the Chinese buyers.
These macroeconomic catalysts imply thatthe demand for metals, i.e. silver has increased given the uncertainty in other asset classes.
Hence...
If the demand increased while the supply remained the same or decreased, then theprices could likely continue to rise.
Let us focus on two points in the chart:
Kindly look at the chart on the early days of June 2016(point A), the price was currently hovering at the support area (wherein we previously learned that there are buyers present at that area).
So let's get started...
If the buying participants outnumber the selling participants, then the price will likely not go further lower, and as more buyers will observe that price action then that will attract them, hencemaking the price move further higher.
At point A, when you see that the market price is at the support zone, and is also increasing, you then might log in to your favorite broker's platform, then select CFD trading and look for silver from the array of available financial instruments, and buy (or go long) that CFD.
Here's the deal:
You could close the trade later when you see that the price stopped rising and is currently at the resistance zone(around July 2016), then book your profit.
Now let us look at point B.The price was already near a known resistance area(where we previously learned that there are sellers present at that area).
If the selling participants outnumber the buying participants, then for the time being at least, the price will likely not go further higher, and as more sellers would have observed that price action, then that will attract them, hence making the price move further lower.
At point B, we see that the market price is at the resistance zone and is not advancing, instead, it was just ranging or having no direction, then when you see that, you could log in to your favorite broker's platform, then select CFD trading and look for silver from the array of available financial instruments, and sell (or go short) that CFD.
You could close the trade later when you see that the price is back near the support zone again (around December 2016), then book your profit.
Kindly always bear in mind:
You need to practice risk management principles, like closing the trade immediately even at a small loss, if price is acting adversely to your plan and expectation.
Just click on the instrument and proceed with the action as what your analysis has advised you to do.
Are you now convinced to start trading silver and be part of a global community of market participants?
Then what are you waiting for?
Sign-up nowwith any of these well-respected and regulated brokers, and cherishthe opportunity to learn and profit from silver price movements.
