What Is Silver Trading? Pros and Cons of the Silver Market

Silver is one of the most popular precious metals that can be used not only for jewelry, electronics, and tableware but also for trading and investing. There are numerous financial instruments that allow you to invest in this commodity. Beginner traders don’t usually consider silver as an investment option, as it may seem less predictable than gold, for instance. Also, the factors that affect the silver market are less obvious.

In this article, we are going to dispel all doubts you may have. Keep reading to find out why it’s worth trading silver, what financial instruments are available for silver trading, and what can affect the commodity’s rate.

What Is Silver Trading?

Trading is a speculation on the price of an asset, silver in our case. Trading’s objective is to benefit from either the rise or the fall of the asset’s price. When investing, you should be expecting that the value of silver will increase in the future. At the same time, if you trade silver, it’s enough to predict how certain factors will affect its price in the near future. So, you can open long or short positions.

There are several financial instruments that you can use to trade in the silver market. They are futures, options, stocks, ETFs, and the XAG/USD pair (speculation on the silver spot price) traded via CFDs.

If your broker provides a margin account, you can use leverage and start trading these instruments with $100. For instance, if you check the silver stock price of the top mining companies, you will be shocked by the initial funds you need to buy real shares. Still, remember that leverage raises not only potential profits but also multiplies losses.

What Moves Silver Prices?

As trading is based on predictions of the future price, you should always check the factors that affect the value of silver before you open a position. All the factors mentioned below affect demand or supply — the main drivers of the silver price. The rule is simple: when the supply increases, the price falls; when the demand rises, the price surges.

• Global economic and political turmoil. Like gold, silver is considered a refuge asset. It means that silver mainly rises in value when there are global economic or political uncertainties. The silver price is most of the time stable enough to encourage investors to put their funds in it when the value of risky assets declines.
• Industrial applications. Industrial uses account for over 50% of the annual silver demand worldwide. The rest goes to jewelry and investments. The US, China, Canada, India, South Korea, Japan, Russia, and Germany are major silver consumers for industrial applications. The economic growth of these countries may have a significant influence on the silver rate. Although some industries that used to consume silver cut their industrial demand for the metal, new technologies apply the commodity, thereby increasing the degree of demand.
• USD. Firstly, silver is denominated in the American dollar. Secondly, one of the trading options is the XAG/USD pair, where silver (XAG is its chemical symbol) is traded against the US dollar. It means that the rate of the greenback strongly affects the direction of the silver price. When the USD appreciates, you could expect silver to rise in value for the short term. However, the increased cost may pull demand for silver down, so the price could decline in the longer term. When we talk about the XAG/USD pair, a surge of USD could pull the pair down. At the same time, when the US dollar depreciates, silver becomes cheaper for investors, raising its demand. As a result, silver’s rate may rise in the long term. When the USD declines, the XAG/USD pair usually moves up.
• Production. Silver is produced through the mining of other metals, including lead and copper. Therefore, when demand for those metals increases, the silver supply rises. Don’t forget that increased supply leads to the depreciation of the price of silver.

What Is the Gold/Silver Ratio?

The gold/silver ratio is used to determine the number of ounces of silver needed to buy one ounce of gold. When investors measure the ratio during a certain period of time, they can estimate the relative valuation of the metals. It allows them to decide which metal to buy or sell at a certain time.

Before the suspension of the gold/silver standard, when national currencies were backed by any of the two metals and the introduction of the fiat currency system, the ratio was more stable.

To calculate the ratio, you need to take the current prices of gold and silver ounce. For instance, if gold costs $2,000 per ounce, and silver is traded at $20, then the ratio equals 100 — meaning that it would require 100 ounces of silver to buy only one gold ounce. A decrease in the ratio means silver appreciates and gold depreciates, and vice versa.

The gold/silver ratio is widely used in technical analysis. As silver often copies gold’s price movements, traders use the ratio. The tool can be applied in several ways. For example, when the silver’s rate lags behind gold’s, a change in a gold price can predict upcoming changes for silver.

Different Ways to Invest and Trade Silver

Trading vs. Investing in Silver

Why Should You Trade Silver?

If you are still in doubt whether you should trade silver or this asset is still mysterious for you, check the advantages of silver trading below.

• Stable price. Although the silver rate may suffer periods of increased volatility, silver is mainly considered a safe-haven instrument that appreciates in periods of risk-off sentiment. Investors usually put their funds in silver when they are unsure about the price fluctuations of riskier assets.
• Cheaper than gold. Gold and silver are refuge assets. However, silver is much cheaper. Although margin trading allows you to open a position with limited funds, the difference in prices is too high to be ignored.
• Won’t disappear. Silver is used in many industries. Even when an older industry stops using silver, usually a new one replaces it. It means that silver’s demand will never fall to zero.
• Diversify. Silver is barely correlated with other assets, except for gold. Thus, you can add silver to your portfolio to diversify it and hedge your funds when the market volatility rises.
• Resistant to inflation. Inflation doesn’t normally affect the value of silver. So, if you want to protect your funds from inflation’s negative effects, you should consider silver trading. Silver serves for price protection.

How To Start Trading Silver

If the above-mentioned reasons have convinced you to trade silver, check the steps you should take to open your first position.

Step 1. Choose a Broker and Open a Trading Account

To be trading efficiently , you should choose the right broker that will support you at every step and provide attractive trading conditions. The NAGA trading platform can be the perfect place for you.

With NAGA, you have a personal account manager, trades are executed in real-time, and you can open a multi-currency account.

To open an account, you need to go through standard registration steps, including filling out a registration form, as well as passing the KYC procedure to confirm that you have the financial background and trading knowledge needed to open a real account.

After you pass all the procedures and provide your personal information, you will be able to deposit funds and open your first trade in the silver market.

Step 2. Use a Silver Trading Strategy

Before you open your first trade, you should develop a trading strategy that will help you enter the market at the most attractive price and exit it at the right timing. If you are not experienced enough, you can practice several strategies on a demo account. Moreover, NAGA provides free daily news and trading signals that can help you when practicing various strategies. We highly recommend combining fundamental and technical analysis to improve your trading strategy and gain an understanding of the financial markets.

Any successful strategy should include entry and exit points. The exit point is defined by setting take-profit and stop-loss orders. A take-profit order reflects the level where the successful trade will be closed, while a stop-loss order is used to limit your possible losses if your strategy was incorrect.

If you prefer a short-term strategy, you should consider scalping or day trading silver strategies. For longer-term trades, range trading can be applied as the silver price usually moves within ranges.

Step 3. Open Your First Trade

The NAGA platform executes trades in real-time, helping you avoid price lags. When trading an asset, you can set market and limit orders. A market order will be executed at the current market price, while a limit order allows you to choose a certain level that will trigger a trade execution if only the price reaches it.

You can open a trade if only you have the required minimum of funds on your trading account.

Step 4. Monitor the Market and Close Your Trade

Although it is highly recommended to place take-profit and stop-loss orders in advance so that they will automatically close your position, it’s recommended to closely monitor the market and your positions and check the news. As the political and economic circumstances rapidly change, you should always be up-to-date. But don’t confuse crucial events with insignificant data that has a limited impact on the silver market.

If you are a newbie trader, it’s easy to panic and close the trade too fast or open many positions when some returns are generated. You should keep your head clear and close or open a new trade only if you are sure of your move

Takeaway

Silver is the second leading precious metal after gold. It’s used not only in jewelry but also in various industries, including electronics, tableware, and investment. Although silver is much cheaper than gold, it’s considered one of the most attractive trading instruments.

A position of the safe-haven asset and quite a stable price attract newbie investors. At the same time, the silver price can suffer periods of increased volatility, providing interesting opportunities for experienced traders.

To efficiently trade silver, you should find a reliable broker. The NAGA platform has an Academy that can boost your knowledge and help you build your trading strategy.