Popular Precious Metals for traders: Silver

What is silver?

Ag or Silver as it is more commonly known is a lustrous, white transition metal. Silver is a metal that is valued by industries for its properties, among which include the highest electrical and thermal conductivity of any known metal, and as a precious metal due to its lustre, relative scarcity and use as a store of value.

Historical timeline of Silver

  1. Silver was noted to have first been mined around 3000 B.C. in Anatolia (now Turkey).
  2. Greece’s Laurium mines became the centre of silver production around 1200 B.C.
  3. In 150 A.D., Spain became the leading producer of silver and the invasion by the Moors served to spread silver mining among a wider range of countries.
  4. The single most important time in the history of silver mining occurred during the discovery of the New World by the Spanish in 1492 leading to a dramatic increase in silver mining
  5. Bolivia, Mexico and Peru accounted for close to 85 percent of total silver production between 1500 and 1800.
  6. Silver production grew worldwide, from 40 to 80 million troy ounces every year by the 1870s.
  7. From 1876 to 1920, advancements in technology and exploitation of new regions led production to quadruple to a total of about 120 million troy ounces annually.

Modern day statistics for Silver

Currently, the largest producers of silver include:

1. KGHM Polska Miedź S.A. based in Poland with 41 million ounces produced annually.

2. BHP Billiton Plc in Australia with 39.0 million ounces produced annually.

3. Fresnillo Plc in Mexico, responsible for 36.9 million ounces annually.

4. Goldcorp Inc. in Canada with 30.5 million ounces produced annually

5. Polymetal International Plc based in Russia which is responsible for 26.5 million ounces produced annually.

6. Pan American Silver Corporation in Canada which produces 25.1 million ounces annually.

7. Volcan Compania Minera S.A.A. in Peru which produces 22.0 million ounces annually.

8. Compania de Minas Buenaventura S.A.A. in Peru which produces about 18.3 million ounces annually.

9. Coeur d’Alene Mines Corporation based in the United States and Mexico producing 18.0 million ounces annually.

10. Southern Copper Corporation based in the United States of America, Mexico and Peru which produces close to 13.6 million ounces annually.

How is Silver Traded

Silver is traded in many forms, which for the sake of classification can be broadly grouped into actual physical silver and representatives (derivatives like CFDs). It is one of the most popular traded metals on the Comex future exchange.
In non-physical forms, silver can be traded as:

Derivatives and CFDs

Spot Silver Chart - Kitco.com

Trading Silver as a CFD is offered by many CFD brokers like London Capital Group. Trading Silver Futures and Spot Silver as a CFD has opened up the door for more traders because it requires less capital than trading a traditional Future. For example, a simple example of trading a Silver Future vs a Silver CFD:

Minimum Trade Silver Future:
Last Spot price of Silver for 1st February 2017 was $17.585
Contract size for Mini-Silver Future = 1,000 troy ounces
Therefore a minimum trade for a single futures contract for Silver would be 1000*$17.585 = $17,585.
*The maintenance margin required by ICE for a Mini Silver contract is $1,250.

Minimum Trade Silver Future as a CFD:
Using the trading conditions offered by London Capital Group, a minimum margin for Silver of 1% and a minimum trade size of 0.1 lot (contract size). The cost of a trade of Silver Future using London Capital Group in this example would be $17.86 (100*17.585/100=$17.585).

Trading conditions for silver futures with London Capital Group

To see more trading details about the 5,000+ instruments on offer, click here: London Capital Group

Market Trading hours Min spread Min trade size Unit risk Value of 1 pip/lot Min Margin Guaranteed Stop change
Silver Futures 23:00-22:00 4 0.1 lot 0.01 $50 1% 6

*All information collected from https://www.lcg.com/uk/, see website for full terms and conditions. Your capital is at risk. Last updated on February 6, 2017.

Mini-Silver Future Product Specs (for full details visit ICE)

TRADING SCREEN PRODUCT NAME
1,000 oz Mini Silver Futures
TRADING SCREEN HUB NAME
ICUS
SYMBOL
YI
TRADING HOURS
LONDON:1:00 AM – 11:00 PM*01:00 – 23:00
CONTRACT SIZE
1,000 troy ounces
CONTRACT MONTHS
Every calendar month in the 3-month period beginning with the first listed futures month.
PRICE QUOTATION
U.S. dollars and cents per oz
TICK SIZE
$0.001 per oz, or $1 per contract
LAST TRADING DAY
Third to last business day of the contract month at 1:25pm New York time
FINAL SETTLEMENT
Physical delivery
DAILY PRICE LIMIT
N/A
BLOCK TRADES
Yes. 5 contract block trade minimum quantity
EFPS AND EFSS
Yes
MIC CODE
IFUS
CLEARING VENUES
ICUS

Bars

These are widely considered the most efficient method of trading silver due to the fact that they are valued exclusively for the silver content rather than any ornamentation or value as currency.

Exchange Traded Products

These help investors trade silver without the need of holding silver in physical form.

Examples include iShares Silver Trust, which has over 340 million troy ounces of silver in storage, ETFS Physical Silver, ETFS Silver Trust and Sprott Physical Silver Trust.

Certificates

This serves a similar function to ETFs in the sense that they allow silver to be held and traded without use of the physical forms instead transactions are made using silver certificates of ownership.

Silver in physical form can be traded in:

Silver bars can come in various shapes and sizes and bars from more reputable brands may command a slightly higher price than lesser known ones while damaged silver bars will also go for less than bars in mint condition.

The bullion bar is the most common form of silver bar.

It is a rectangular or triangular bar of .995+ purity silver, and it comes in sizes of 1 oz, 5 oz, 10 oz, 1 kilo and 100 oz.

Coins

Silver coins have the advantage of bars in that they are more difficult to forge, mostly because of their use as currency, and their ease of liquidation.

Some examples of silver coins include the one ounce 99.93 percent pure American Silver Eagle, and the one ounce 99.99 percent pure Canadian Silver Maple Leaf.

Silver Futures vs Spot Silver

 

Spot Silver Silver Future
Spot silver represents the price at which silver is currently trading and is the base price for unfabricated silver Silver futures represent a legally binding agreement for delivery of silver in the future at an agreed-upon price
Delivery of silver happens on the spot Silver is delivered and paid for at a later date
Spot silver purchases are usually made with the expectation of future increase in price. Silver futures to may be purchased to hedge the purchase of physical silver that might lose value if silver prices drop moving forward
Spot silver is usually purchased primarily for reasons of taking possession of the physical asset Futures contracts may be bought with the intention to profit from future price changes with no interest in taking possession of the underlying asset

What Influences The Silver Market

The largest factor influencing silver demand is industrial use, in 2015, according the Silver Institute,industrial fabrication accounted for 54 percent of total physical demand.

As industrial silver applications increase, demand for silver naturally also tends to go up.

For example, use of silver in photovoltaics for sola energy is set to surpass its previous peak of 75.8 million ounces due to the growth of global solar panel installations.

Use of silver by Ethylene Oxide producers, used in the production of plastics and detergents was also projected to increase to 10 million ounces in 2016, which was an over 25 percent increase from 2015.

Supply of silver globally was projected to fall by up to 5 percent as a result of the relatively lower price environment providing primary producers with little incentive to expand production capacity in existing mines and the drop off in production from more mature existing mines.

As a result, the silver market deficit is expected to widen in 2016, driven primarily by a contraction in supply.

Commodities related to silver include:

  • Platinum
  • Gold
  • Aluminium
  • Tin
  • Copper

Popular Silver Exchanges

  • Eurex Exchange – One of the world’s leading derivatives exchanges. It offers a wide range of international benchmark products. It has trading volume exceeding 1.5 billion contracts a year and includes participants from 700 locations worldwide.
  • Commodity Exchange Inc (COMEX) – It is a division of the New York Merchantile Index, where metals like gold, silver and copper and the FTSE 100 index options are traded.
  • Tokyo Commodity Exchange (TOCOM) – One of Asia’s largest commodities futures exchanges. It was established in 1984, became a for-profit shareholder-owned company in 2008 and launched the current trading platform in 2009

Summary

Silver is one of the most popular traded precious metals. Trading Silver as a CFD will allow a retail trader to trade silver with a smaller account requirement than a regular future contract.