Silver Commodities Trading
Silver has some rare qualities in the commodities market. It is one of the few substances, like gold and a few others, that private investors can easily take delivery of. And the price is far more in reach of the average investor than gold. Storage and security obviously need to be considered, but a safe deposit box at a bank can solve this problem.
Taking actual delivery of a commodity provides expanded trading strategies, as it allows for additional hedging, using a combination of spot and futures contract trades. It also gives the opportunity of pure spot trading with local merchants. 'Spot trading' means buying and selling the actual commodity, as compared to trading futures contracts in which actual delivery, for most traders, is rare.
Silver also has the advantage of having a relatively low per ounce price. For decades silver has traded in the range of $5-$15 per ounce. As with lower-priced stocks, the average investor sees those prices as more accessible, and are able to buy in quantities large enough to make substantial profits.
To someone used to trading stocks and seeing them rise to ever greater heights over the years, the price range doesn't sound overly appealing, but factoring in inflation, those stock prices don't always look so good. Real prices can be measured with silver and gold.
Traded on COMEX (The Commodity Exchange of New York), a division of the New York Mercantile Exchange, and elsewhere, the standard contract size for silver futures is 5,000 troy ounces. A 'troy' ounce is 1.1 times the common avoirdupois ounce used in cooking and packaging.
There is a tick (minimum price fluctuation) of $0.005 per troy ounce. With a minimum of 5,000 troy ounces, that makes a tick worth $25. Those used to stock prices which move around 10 to 25 cents per share may be surprised by this, but multiplying by 100 shares brings it in the same range. In any case, it's a normal amount in commodities trading.
A standard price quote may appear as:
|
Contract Date |
Last |
Change |
Open |
High |
Low |
Date/Time |
|
Jun ’06 (SIM06) |
1014.8 |
-3.7 |
1013.8 |
1014.8 |
1012.8 |
12:29 |
The contract date specifies the expiration month and year of the contract. The exchanges sets the specific date. The characters in parentheses are a standard abbreviation for a futures contract. SI is silver, M is the short form used for June and 06 specifies the year, 2006. The others represent familiar price quote columns.
The prices are given in cents per troy ounce, so 1014.8 would be equivalent to $10.148 per ounce. Therefore an investment of $50,000 is needed for one contract at $10 per ounce, (remembering that one standard contract is for 5,000 ounces). That’s a large outlay for the average investor, and one of the reasons futures and options - which allow investing around 5% of that - are so popular.
It is important to realize that silver prices are extremely volatile. May 2006 saw the price of silver peak at over $15 per ounce. It then quickly fell to around $10 per ounce. However, absolute price and trend is not what counts in trading. Profits and losses are made based on the difference between buying and selling prices, which means that timing is the most important factor.
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