Silver trading explained: How to trade silver CFDs

Silver trading is the process of buying and selling silver to make a profit from changes in the price. However, of course, it is a risky venture, where losses can also occur.

People have used silver as a store of value and an investment vehicle for centuries. Just like gold, platinum and palladium, silver trades as a precious metal and has safe-haven features. 

Meanwhile, a silver trade definition includes a wide range of financial instruments such as options and futures as well as the physical metal.

Silver trading price history

Silver has several characteristics that make it a valuable commodity: it is pliable, malleable, and lustrous. It is also a good conductor of electricity and a bacteria killer, which makes it a highly valuable metal in numerous industries including energy, medicine, electronics and jewellery.

Silver mining began more than 5,000 years ago, with the precious metal initially used as a commodity in the Babylonian empire. Silver was adopted as a currency in the Greek and Roman empires, as well as other civilisations in Asia including China and Japan, where silver coins were used in international trade.

In the US, the minting of silver dollars started in 1794, they remained in circulation for 80 years until the introduction of the gold standard for the value of the dollar reduced the importance of silver as a currency.

Today, silver has a hybrid role as a precious metal, used as a store of value and an industrial metal used in a variety of important applications. The silver price is driven by investor sentiment as well as economic data indicating the state of industrial activity. 

The price of the precious metal doubled from around $10 an ounce to $20 during the 2008 financial crisis, and went on to approach $50 in 2011 for the first time since 1980. 

Silver approached $30 in early 2021 for the first time in more than eight years as concerns about the impact of the Covid-19 pandemic on the global economy drove investors to safe-haven assets like precious metals.

What drives silver prices?

There are several factors that could influence the silver price direction.

Industrial demand

Silver has diverse technological applications, and is widely used in the automotive, electronics and healthcare industries. Unlike gold, which is primarily an investment instrument, around half of the annual demand for silver comes from industrial uses, so physical consumption is an important price driver. 

Silver is used in electronics, solar panels, automotive systems and medical devices, all of which are growing sectors that are expected to experience increased demand in the coming years.

Gold prices

Given the strong investment demand for silver, its price tends to follow the direction of gold, which is the primary precious metal market. Silver is viewed as a more affordable alternative to gold for investors with smaller portfolios, as silver trades at much lower prices than the yellow metal.

The gold-silver ratio refers to the number of ounces of silver needed to buy one ounce of gold. Traders look at the gold-silver ratio to gauge the performance of silver relative to gold.

Global economics

Sentiment surrounding the health of the global economy is an important driver for silver. Periods of economic expansion reduce interest in the metal as a store of value, with investors opting for other assets in a risk-on environment. 

Conversely, during recessions and periods of uncertainty, investors tend to increase their exposure to silver. In the times of high inflation, traders often consider silver a trustworthy store of value, as fiat currencies lose their purchasing power.

US dollar

Prices for silver and other precious metals can be affected by the forex markets as they tend to move in an inverse direction to the US dollar. A strong US currency encourages investors to hold dollars and other assets, while a weaker dollar increases the attractiveness of precious metals as a store of value. 

Additionally, a stronger US dollar makes commodities traded in dollars such as silver and gold more expensive for overseas buyers who use other currencies, weighing on demand. Meanwhile, a weaker dollar makes silver cheaper for international investors, who take the opportunity to buy the precious metal at lower prices. 

Investment demand

Demand for physical silver bullion and paper instruments from investors are major drivers for the metal’s price of the precious metal. Demand from investors rises and falls based on the economic outlook, the value of the US dollar, monetary policy on interest rates and inflation and geopolitics.

Geopolitics

Geopolitical events can have an impact on silver demand, as they affect investor sentiment and can drive interest in safe-haven assets or encourage investors to increase their exposure to riskier assets. For example, the Russian invasion of Ukraine saw the silver price rise as investors reacted to the uncertainty.

Mining production

The availability of silver supply from mining also affects the market, as tight supply supports higher prices. The closure of silver mines in major producing countries like Mexico and South Africa during the Covid-19 pandemic provided support to the market as demand outpaced supply.

What are the benefits and risks of holding silver in your portfolio?

There are several key reasons for investors to hold silver in their investment portfolios:

• Hedging against market volatility. Silver is seen as a safe-haven asset that could hold its value during times of uncertainty, when stocks and bonds tend to fall in price.

• High liquidity. Silver is an actively-traded commodity that typically offers tight bid-ask spreads which means it is highly liquid, including various silver-linked instruments from physical silver bullion to silver contracts for difference (CFDs), silver mining stocks and silver exchange-traded funds (ETFs).

• Long-term demand trends. Silver’s use in growing technologies including electric vehicles (EVs), solar panels and 5G telecom equipment could increase demand in the coming years. 

According to the World Silver Survey 2022 by the Silver Institute: “Silver demand is forecast to post steady gains in the next few years to successive record highs. Industrial demand for instance is expected to see initial gains as economies continue to recover from the pandemic and through structural change.” 

• Declining mining supply. Production from silver mines is expected to drop in the long term due to lower recovery rates from ore in the ground and a lack of new mining projects. 

According to the Silver Institute: “Over the longer-term, four to five years out, output will begin to decline unless sufficient investments are made to bring earlier stage projects on-line.”

On the other hand, having silver exposure also has its disadvantages:

• Market volatility. The silver market is volatile, this creates opportunities for speculation but also raises the risk of losses.

• Changing monetary policy. Changes to central bank policies on interest rates can reduce the attractiveness of silver relative to other assets. Higher interest rates could make silver less favourable than interest-bearing savings accounts and other financial instruments.

• Storage costs. Holding physical silver is a direct way to gain exposure to the precious metal, but investors must arrange a safe place to store the metal and pay storage and insurance costs. Therefore, silver traders and investors might explore other options of silver trading, from silver mining stocks and ETFs, to silver CFDs. 

How to trade silver: Seven ways to approach the market

How to start trading silver? There are a wide range of ways of how to trade in silver from buying and selling physical metal to trading derivative financial products.

Silver bullion

Traditionally, the answer to the question of how do I trade silver was to buy and sell physical silver bullion coins, bars and rounds. 

Trading physical silver is straightforward compared to buying silver-linked stocks or ETFs, in that it doesn’t require company or ETF-specific knowledge. Silver bullion can be bought and sold through a dealer or in bilateral trades with another investor in exchange for cash.

Silver spot price

You can trade silver through the spot or futures markets. Spot silver refers to the price at which you can buy or sell silver for immediate settlement, rather than a date in the future. Silver is usually bought at a discount and sold at a premium to the spot price, as dealers make their profits from the spread between the bid and ask prices. Silver’s ISO currency symbol is XAG, equal to the chemical symbol of the precious metal. 

Silver stocks and ETFs

If you want to gain exposure to the silver market in your stock portfolio, you can trade stocks in silver mining companies or ETFs that track the silver price. Investing in multiple stocks or ETFs enables you to diversify your exposure across many different companies and instruments, mitigating risk.

Some examples of mining stocks are Wheaton Precious Metals (WPM), Pan American Silver (PAAS) and First Majestic Silver (AG). Silver-related ETFs include iShares Silver Trust (SLV), Aberdeen Standard Physical Silver Shares ETF (PPLT) and Global X Silver Miners ETF (SIL).

Where to trade silver stocks and ETFs? You can do it via a broker on a stock exchange, just as you would trade any other stocks or funds.

Silver futures and options

You can use silver futures and options contracts to gain exposure to the market’s direction without owning any stocks or funds. Futures contracts trade on commodity exchanges and enable you to speculate on the price for a specific amount of silver on a set date in the future. 

If you’re interested in how to trade silver futures, you’ll need a brokerage account that gives you access to futures contracts.

Silver CFDs

Contracts for difference (CFDs) allow you to speculate on the direction of the silver price without owning the metal or taking a position in stocks or funds. CFDs are a form of a contract between a trader and a broker aimed at profiting from the price difference between when the position is opened and when it closes.

CFDs are leveraged products that allow you to trade on margin to maximise the returns on your position with a smaller initial investment. Note that CFD trading is risky, as leverage could also increase your losses. 

Silver trading strategy

Before you start trading CFDs, you should have a clear silver trading strategy in place. 

As with any other tradeable asset, there are different trading strategies you could use to help you make consistent decisions on when to open and close a position, minimising emotional bias in your decision-making. Here are four strategies for you that you could consider using in your silver trading.

Scalping

Scalping is a short-term strategy that aims to make profits intraday on sharp price moves within minutes. Scalping uses technical analysis tools to identify entry and exit points. 

Once the indicators have signalled a bullish or bearish trend, traders set up stops and limits with a stop loss at the support level shown by the technical indicators. Then they exit the trade as soon as the indicators show the trend changing direction.

Day trading

Day trading silver strategy would be similar to scalping but can involve holding a position for hours rather than minutes. As with scalping, day trading makes use of technical analysis to identify the levels to enter and exit positions. 

Range-bound trading strategy

A range-bound strategy is useful when the silver market is in a period of consolidation and prices are relatively stable. 

Using support and resistance levels helps range-bound traders identify the upper and lower ends of the trading range. They can then set an order to buy silver at the bottom of the range in anticipation of the price moving higher or sell when the price reaches the top of the range in expectation that the price will turn lower.

Stop losses could help traders reduce the risk of significant losses when the price  fluctuates out of the trading range.

Trend trading strategy

Trend, or position, trading is a long-term strategy that identifies when an asset price is in an upward trend with higher highs and lower lows or when it is in a downward trend of lower highs and lower lows. 

Traders can use technical indicators to identify entry and exit points such as the momentum oscillator or the relative strength index (RSI). If an upward trend looks likely to continue, a trader can open a long position, but if it looks set to reverse, they can go short and in an attempt to profit from the shift into a downward trend. 

As with the other trading strategies, it is important to have a risk management plan in place. Remember that past performance never guarantees future results and the asset’s price can turn against your position. 

How to trade silver CFDs

How is silver traded using contracts for difference? CFDs are flexible instruments that allow traders to speculate on various silver price fluctuations, whether it’s an upward or a downward movement. CFDs are considered more suitable for taking a short-term position on the silver price, due to overnight fees. 

To start silver trading online, rather than buying physical metal you could sign up for an account with a CFD provider. Rather than requiring a specific silver trade app, you can trade silver CFDs along with other commodities, stocks and ETFs.

If you would like to start trading CFDs on silver follow these steps:

1. Create a trading account

2. Choose the underlying silver product you want to trade

3. Use your trading strategy to identify potential trading opportunities

4. Open your first position

5. Monitor your trade using technical and fundamental analysis 

6. Close your position based on your trading strategy

Learn more about silver trading in this video:

Pros and cons of trading silver CFDs

Commodity prices can be highly volatile, experiencing wild price swings. Trading silver CFDs is a way to try to profit from drastic silver price fluctuations, though the chance of making large profits goes hand in hand with the risk of large losses.

Trading silver CFDs saves you the cost of paying for silver storage. It also gives you the opportunity to trade silver in both directions. Whether you have a positive or negative view of the silver price, you can take a long or short position to try to profit from the price movement.

The 10% margin offered by Capital.com means that you need only 10% of the value of the trade you want to open, and the rest is covered by your CFD provider. For example, if you want to place a trade for $1,000-worth of silver CFDs and your broker requires 10% margin, you will need only $100 to open the trade.

However, you should be aware that trading CFDs also carries risks as they are leveraged products that multiply the size of losses if the price moves against your position, as well as maximising gains if the price moves in the same direction. It is important to do your own research and understand how leverage works before you start trading.

Why trade silver CFDs with Capital.com?

Advanced AI technology at its core: A personalised news feed provides users with unique content depending on their preferences. The neural network analyses in-app behaviour and suggests videos and articles that fit your investment strategy. 

Trading on margin: Thanks to margin trading, Capital.com provides you with the opportunity to trade silver CFDs and other top-traded commodities, even with a limited amount of funds in your account. Keep in mind that CFDs are leveraged products, which means both profits and losses can be magnified. 

Trading the difference: By trading silver CFDs, you don’t buy the underlying asset. You only speculate on the rise or fall of the silver price. A CFD trader can go short or long, set stop and limit losses and apply trading scenarios that align with their objectives. CFD trading is similar to traditional trading in terms of its associated strategies. However, CFD trading is short term in nature, due to overnight charges.

All-round trading analysis: The browser-based platform allows traders to shape their own market analysis and make forecasts with sleek technical indicators. Capital.com provides live market updates and various chart formats, available on desktop, iOS and Android.

Sign up at Capital.com and use our web platform or download the investment app to trade CFDs on the go. It will take you just three minutes to get started and access the world’s most traded markets.

Silver market trading hours

Beginner traders may be wondering - does silver trade 24/7? Does the precious metal trade on weekends and when does silver start trading? 

CME Globex provides electronic trading 24 hours a day, six days a week:

• Sunday to Friday, 17:00 – 16:00 (CT) with the same gold futures and options markets open time and a 60-minute daily maintenance break each day from 16:00 to 17:00 (CT)

If you choose to join Capital.com, you can follow silver prices in US dollars live and trade spot silver CFDs during the following hours:

• Monday to Wednesday, 00:00 – 21:00 and 22.05 – 00.00

           Thursday, 00.00 – 21.00

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