How to Trade Silver
Purchase of investment silver in physical form
One way to invest in silver is to buy bricks, jewelry, ingots, or commemorative coins made of this precious metal. However, this method has its pros and cons.
- Maintaining the price, protection against inflation, a safe haven - as we have already mentioned, having silver in physical form pays off mainly because of the long-term increase in its price and its ability to withstand the effects of inflation. So if you can hold your silver for a long time, you have a chance to make it an attractive investment.
Artistic processing margins for some products - By buying silver commemorative coins or jewelry, you get not only precious metal but also a product that has been processed in some way, which will be reflected in its final price. So if you are going to invest in silver by buying these products, you must keep in mind that the overall year-on-year increase in the price of silver must be such that it will pay for this margin in the long run. At the same time, you must have a trustworthy buyer who will take the coins or jewelry from you at a price higher than the price of the silver contained here, otherwise, the investment will not pay off.
Beware of fraudsters - When buying silver, it is necessary to beware of possible fraudsters selling counterfeits or silver of lower quality. Therefore, it pays to look only for recognized and long-acting dealers or institutions.
Storage - A drawer in your bedroom is not highly recommended for storing the silver you have purchased. The safe is therefore a slightly more feasible option. Even so, there is a certain risk that someone will somehow learn about your silver and your investment will not be a long-term one anymore. Therefore, another option is to store silver in the safe-deposit boxes of some banks. However, you pay certain annual expenses for this option, which cuts off part of the interest on your investment.
Online silver trading
In today's time of technology, online silver trading is undoubtedly on the rise. And no wonder.
Online silver trading is:
- More convenient (anyone with a computer, tablet, or smartphone with internet access can trade).
- Cheaper (minimum deposit for opening a trading account starts at approx. € 100).
- More flexible (in some of the forms of online trading it is possible to speculate on a decrease in the price of silver).
Trading silver for futures contracts
When trading silver through futures contracts, you buy a future supply of a certain amount of this precious metal in its physical form. However, this does not mean that you have to set up a safe at home, as we mentioned a little above in the case of investing in silver in physical form. Each contract has a predetermined date when the delivery of silver in its physical form should take place. This is called the expiration time. Therefore, if you manage to "get rid" of the contract and sell it before it expires, you will not need a safe.
If you are not interested in speculating on silver prices in the short term, but would rather want to invest in silver in the long run, we would rather not recommend this method of trading.
Silver trading through ETF portfolios
ETF portfolios are a kind of set of shares or bonds of companies in which the investor invests at once. Their composition always follows a certain concept. In the case of silver, the ETF portfolio will contain shares or bonds of companies that mine, process, etc. This method of investing in silver is passive, long-term and usually with the possibility of paying dividends.
Speculation on the price of silver with CFD contracts
A very popular method is trading through so-called differential contracts. These are speculative papers created by the broker, the price of which is usually derived from the price of futures contracts or the spot price of silver. So the trader does not directly own silver, he only speculates on its price (the instrument designed for this is called XAGUSD - it is, therefore, the relationship between the price of silver and the US dollar).
The advantage is that in the case of differential contracts, in addition to growth, it is also possible to speculate on a decline and it is, therefore, possible to profit in both directions. This means that the trader has the opportunity to earn regardless of whether the silver is thriving, and the price is rising, or vice versa. In this case, it is crucial to correctly estimate the direction in which the price of silver will develop. Another reason why CFDs are an increasingly preferred form of silver trading is the ability to leverage to trade larger amounts than your original deposit.
In this sense, differential contracts are similar to futures contracts in that they are used for speculation, but with the difference that the differential contract cannot expire. Given that these contracts are created artificially by the broker, it pays to invest in a quality broker with transparent trading conditions and a good reputation among other traders.
Why CFD contracts:
- You can trade with smaller capital (unlike the above-mentioned methods of trading, when you need capital in the hundreds of thousands, thousands to tens of thousands will suffice for difference contracts, Purple Trading offers to open an account with a minimum deposit of CZK 2,500).
- Leverage (determines the ratio of the amount of capital you put into a given trade to the funds provided to you by the broker. At Purple Trading, we offer 1:20 leverage for silver trading - ie with $ 100 you can open a trading position of $ 2,000. then corresponds to both profit and potential loss. Therefore, it is necessary to use the leverage wisely).
- Possibility to speculate on the rise and fall of the price of silver - With CFD contracts you are not the owner of silver, which means that not only are you not worried about the fall in prices of this precious metal, but you even have the opportunity to profit from it.