Folks who are looking to invest in silver sometimes look into silver futures. Silver futures are a viable means for adding the diversity of a silver investment to your portfolio. Silver futures are traded worldwide on various exchanges, including the COMEX (Commodities Exchange) which is a world reference when it comes to silver prices. Silver futures give investors an opportunity to make gains on the anticipated price change in the silver commodities market.
How Silver Futures Work
Silver futures are futures contracts where a trader makes a commitment to accept or make delivery of a particular quantity of silver during a specified period at a price that is pre-agreed upon. Typically, only a small fraction of silvers futures contracts actually end up being delivered, since most traders will offset their position on the contract before it matures and thus no delivery is ever made.
Loss or profit on silver futures contracts is determined by calculating the difference between the futures contract purchase price and the price at the time the transaction is offset or allowed to mature. Silver is traded in dollar amounts per ounce and silver futures trade in two contract sizes, 1K and 5K ounces.
Advantages of Silver Futures
There are a number of reasons that an investor might choose to invest in silver by buying silvers futures, including these advantages:
- No storage risk. Although robberies are rare, if you don’t own physical silver, you don’t have to worry about protecting it or storing it. You don’t pay any fees for using a depository or have to buy a safe.
- Financial leverage. Since futures trade at a centralized exchange, they offer enhanced financial integrity and flexibility when compared to trading the actual commodity itself.
- Less capital required. Because futures contracts are traded with a performance margin, this type of investment requires significantly less capital than needed on the physical market.
- Higher return. Because this speculative type of investment has a higher risk, the leverage involved in silvers futures also provides a higher return.
Just as there are a number of reasons that investing in silver futures is a wise move, there are also some drawbacks for the investor to consider. High risk factors, unlimited loss potential, and trading limitations are just a few of those disadvantages. Moreover, investing in futures contracts of any kind requires market expertise.
Trading in futures contracts involves taking risks, and is thus not a suitable investment for everyone. Even though there are substantial profits to be made for those who are involved in this type of investment, the truth is that futures trading may be best left to those traders who have the necessary experience to succeed in this type of market.
A better option for many investors is the purchase of silver bullion, including silver coins, bars, and rounds, none of which carry the inherent risks of silver futures.