A brief article on Investing in Silver CFDs
Gold and Silver are precious metals that has been known to man since the olden days. Investing in Silver and Gold also dates back to prehistoric times when man explored, mined and used these metals as a form of money and treasure. Silver is a shiny white metal that is ductile, malleable and exhibits a very high electrical and thermal conductivity when compared to other metals. Many years ago, Silver and Gold coins were used as mediums of exchange and were also valued as treasured metals.
Silver is a naturally occurring element but it is usually combined with Sulphur, Arsenic, Chlorine and many other ores. As a result, its production comes from extraction process such as amalgamation or electrolysis. It is also found as alloys with other metals; several metal production companies obtain Silver as a by-product from the mining of other metals like gold, copper, zinc, etc
In these modern times, Silver is an industrial metal that is in high demand because of its many properties and applications. Its high electrical conductivity is utilized in the production of solar panels, electrical contacts, printed circuits and conductors. As a good reflector, it is used in mirrors and silver-coated surfaces. It is used in silverware, jewelry, and as a precious metal used to store wealth. Silver is also used in medicine, dentistry and photography.
In the financial markets, Silver is classified as a hard commodity; this is because it is mined, bought and sold in standardized quantities and quality. Other hard commodities are Gold, Copper, Brent oil, etc. So, how are commodities traded? There are various methods of trading different commodities. Below are some of the available options of investing in Silver commodity:
1) Investing in Silver Coins and bullions
Though it is no longer used as a form of money, silver coins and bars are still available. Some investors still prefer to hold or keep the physical Silver for many reasons such as; to preserve their wealth, hedge against inflation or bad economy, etc. With Silver bullions in hand, there is no fear of internet hackers; who steal traders’ online accounts, credit card details, digital assets, etc. The metal is durable and can easily be sold anywhere. But, Silver coins or bars can be stolen; so, the investor must find a way to safeguard his hard assets.
2) Investing in Silver Futures contracts
These are standardized contracts that stipulate a specified date and price at which the parties involved must buy or sell a defined quantity of Silver. Futures contracts are traded on exchanges such as the New York Mercantile Exchange (NYMEX) and others. Investing in Silver futures is done by miners or speculators; Silver producers use it to hedge against future losses while speculators attempt to use it to capitalize on the price fluctuations of the commodity. The contracts may be cash-settled or the buyer may take delivery of the physical Silver when the contract expires. Just like other investment methods, investing in Silver futures contracts is risky.
3) Exchange Traded Funds (ETFs)
ETFs generally pool together a group of assets into one asset that is traded on the stock exchange just like stocks. Silver ETFs are traded on major stock exchanges and they track the price of Silver. According to ETF.com, about 10 Silver ETFs are traded in the U.S. markets with a total assets management of $18.25 billion. Investors can speculate or buy into the shares of these Silver ETFs and sell when the price appreciates. ETFs offer lower taxes and the fees are lower when compared to mutual funds.
4) Investing in Silver Stock
Another way of investing in Silver commodities is by owning shares of the companies that deal directly with Silver. This could be Silver mining companies such as Coeur Mining Inc., Pan American Silver Corp, etc. or Silver streaming companies such as Wheaton Precious Metals Corp. Streaming companies does not own or operate mines, rather they buy Silver and other metals from mines usually by making advance payments before the Silver is mined.
The aim of stock market investors is usually to earn dividends anytime the company shares its profits or to keep the company shares and sell later at a profit. Their overall aim is to buy low and sell high. Today, we have stock market traders who deploy various strategies to speculate on the stock market. These traders may buy and sell different company shares with the sole aim of making profits from the price fluctuations.
5) Silver Options
These are options contracts in which the holder has the right but not the obligation to buy the underlying Silver commodity at an agreed strike price upon contract expiry. It is available for trading on the NYMEX and also on some online broker platforms on over the counter (OTC) basis. ‘Put options’ are bought when you expect a decline in price while ‘call options’ are bought when an increase in price of the underlying silver commodities are expected. ‘Silver options’ can be good for speculators who wish to try to take advantage of the price movement of the commodity.
6) Silver Contract for Differences (CFDs)
CFDs are traded through numerous online brokers that offer their services through the internet. Silver CFDs are contracts made between brokers and traders enabling traders to only speculate on the prices of the underlying Silver commodity without physical delivery of the Silver bullions. The brokers provide the background technology, servers, etc but offer the traders a software platform on which all orders are placed. The CFD trader places a ‘buy’ order if his analysis predicts a price increment but places a ‘sell’ order if he concludes that a price decline is imminent.
The CFD trader stands a chance of potential profits if his predictions are correct and the market moves his way, otherwise, it will be a loss. CFDs are OTC products and so, different brokers have their own contract specifications, services offered and operation guidelines. It is often hectic for new traders to find a reliable broker because of several reasons such as; charges, assets offered, trading platforms available, scam brokers, minimum deposit, etc.
Investing in Silver CFDs with R1Investing
R1Investing is CFD broker that is driven by modern technology, transparency and professionalism. Being a CySEC regulated broker means that we comply with the stipulations of the regulatory authority which ensures client funds segregation, platform encryption via SSL and general fairness to all clients. Investing in commodities and all other tradable assets are done through the MT4 trading platform. Silver CFDs are paired with USD; so, it is traded as XAGUSD.
Below are the steps to follow when investing in Silver CFDs with R1Investing:
- Click the ‘open account’ button and fill the form that displays.
- Complete the KYC verification by uploading the requested documents.
- Using the most convenient option, deposit your trading capital.
- When your account has been approved, proceed to download the MT4 trading platform either on a windows computer, android or iOS mobile devices. If you prefer the WebTrader version, click on the link to load it on your browser.
- If you choose to trade the specific asset On the MT4 home screen, find XAGUSD and open a ‘buy’ or ‘sell’ position.
- when you decide at any time, you may close the order.
Most traders deploy various trading strategies and complex analysis which helps them to determine whether to ‘buy’ or ‘sell’. Closing the trade terminates the contract and secures any potential profits or losses made from the trade.
Advantages of investing in Silver CFDs
1. Leverage trading
One of the endearing characteristics of CFDs is that they are traded on leverage. This is a tool that allows traders to open positions that are multiples of their account balances. For example, assuming a broker offers a leverage of 1:100 on a CFD asset, then a trader with an account balance of $2,000 can open trade positions worth $200,000. Leverage trading greatly reduces the start-up capital required to trade CFDs. It increases a trader’s profit potential but at the same time, it also increases the trader’s risks of losses.
2. Availability of trading resources
There is a surfeit of various trading resources which can be of immense benefit to CFD traders. Numerous training websites and apps have various training videos, eBooks and resources on investing in commodities as well as other assets. Websites and fintech companies like; Claws & Horns, TradingView, etc provide in-depth analysis, market news and trading ideas on a variety of instruments which includes Silver and other precious metals. There are numerous signal services availble for subscription.
To commence investment in Silver CFDs, it only takes a few minutes to create an account with a broker. Client orders are executed in less than a second and potential profits are credited into the trader’s account immediately the trade is terminated. The trading platforms, trading servers, personnel and expertise are all provided by the online brokers. The trader only needs sufficient trading knowledge and experience, trading capital as well as an internet enabled device in order to commence trading. Thus, investing in commodities CFDs are convenient, fast and straightforward.
4. Ability to go long or short
Since CFD traders speculate on the price of the underlying Silver commodity, their ultimate aim is to forecast the price direction. So, CFDs present trading opportunities as well as profit potentials in both bearish and bullish markets. This is unlike some investment methods where the investor desires only bullish markets in order to stand a chance of making potential profits.
1. Market risk
CFDs are derivatives, meaning that its pricing is derived from the underlying markets in real time. Therefore, the price of XAGUSD displayed on the broker’s trading platform is obtained from the price of the underlying Silver commodities. A close study of the price shows that it is very unstable and constantly fluctuates. Also, there are times of volatility when the price suddenly soars or plummets. To the trader, volatility makes the market inherently risky because when the market reverses against the trader’s position, he is likely to suffer substantial losses.
2. Leverage risks
As stated earlier, leverage is designed to increase the trader’s exposure by allowing him open positions that are much higher than his investments. Unfortunately, leveraged positions amplify potential profits as well as potential losses. If the leveraged trade goes in favour of the trader, he will likely make more profits, but if the market reverses against his position, he suffers leverage amplified losses.
This is why every broker states it conspicuously on their websites that CFDs are complex instruments and are highly risky because of leverage.
Precious metals like Gold and Silver are as old as human history because for several centuries, they have been used as money, in jewelry and in wealth preservation. Today, investors have the choice of buying physical silver, trading stocks of silver companies, ETFs, Futures contracts and Silver options. Investing in Silver CFDs gives traders the opportunity to speculate on the prices of the underlying Silver commodity. CFDs require small capital, they are convenient and there are multiple resources to support the trader.
R1Investing is a regulated broker that offers more than 300 CFD assets for trading via the popular MT4 trading platform. Mobile trading, automated trading and multiple trading tools are available on the MT4. We offer competitive spreads on all assets and there are no hidden commissions. All client orders are executed almost immediately; in fact within fractions of a second. We also provide additional trading tools; such as updated daily market news, the economic calendar, etc. Our ‘Education centre’ features training videos, eBooks, platform tutorials and trading articles.
What is the best way to invest in Silver?
No method of investment in silver commodity is outrightly better than the other. The choice of investment method depends on the trader’s preferences and objectives, his risk appetite, capital, knowledge, etc. CFDs are complex, require a lot of knowledge, skills, time, etc and may not suit all investors. Always bear in mind that any investment method chosen definitely poses a risk to your capital.
Can you make money with Silver CFDs?
It is possible to make money with Silver CFDs and chances may increase when your analyses and speculations are always in line with the market fluctuations. But, it is very difficult because it requires deep knowledge and understanding of CFD trading, huge capital, excellent trading strategies, risk management principles and great discipline. Majority of retail traders end up losing a significant part or all of their invested capital while trying to make money via CFDs.
How long can I hold Silver CFD?
CFDs do not expire and this includes Silver CFDs. This means that you can hold a CFD position for months or years provided that you have enough margin to cover the open position. Most brokers will issue a ‘margin call’ to the trader when his account balance depreciates but will start closing up the trader’s position if the account balance continues to depreciate and there is no more margin to maintain open positions.
The information above is provided solely for education purposes only and cannot be considered as investment advice whereas the Company accepts no liability for reliance on the said information. Past performance is not a reliable indicator of future results.