What are Silver Futures Contracts and How Do You Trade Them?

While the importance of gold investment is well-documented, silver is another precious metal that can give a kicker to your portfolio. A broad rally in commodity markets has pushed up silver prices that remain bullish. With silver prices up over 24% YTD , silver futures contracts could be a prudent way to buy and sell silver.

What Are Silver Futures Contracts?

Silver futures contracts are agreements inked by two parties to buy or sell a certain amount of silver at a predetermined price in the future. Silver is the underlying asset of these contracts traded on exchanges like the Multi Commodity Exchange (MCX). Through a silver futures contract, you can speculate on silver's future price movement to hedge or seek profit.

How Do Silver Futures Contracts Work?

When you buy a silver futures contract, you agree to purchase the metal at a future date at the current available price. On the other hand, if you sell a contract, you agree to sell it at a set price in the future. Let us understand it with an example.

If you think that silver prices will go up in the future, you can buy a silver futures contract. If prices go up, you can sell the contract at a higher price. On the other hand, if prices go down, you can sell the contract.

Steps To Trade Silver Futures Contracts

To trade in silver futures contracts, you need the services of a broker registered with the commodity exchange. Once you find that broker:

• Open a Demat and trading account with the broker
• Conduct extensive research, particularly on global economic trends and market sentiments affecting silver prices
• Opt for a contract that matches your requirements and risk tolerance. Pay special attention to contract specifications, expiry date, and trading volume
• Place a trade as per your needs
• Monitor the market carefully. It’s wise to place stop-loss orders to manage your risks effectively

Benefits Of Silver Futures Trading And Essential Lookout

Silver futures trading offers these benefits:

• High liquidity

Silver futures are pretty liquid. Being actively traded, you can enter or exit your positions.

• Can use for hedging and speculation

You can use silver futures to hedge against price fluctuations in the silver market. You can also use silver futures to speculate future price movements and benefit from buying high and selling low. However, there are certain essential things you need to keep in mind during silver futures trading. These include:

• Start with small positions if you are new to silver futures trading. This allows you to test the waters before committing.

• Always stay informed about silver prices to make informed trading decisions.

Summing It Up

Silver futures contracts can be a prudent way to benefit from price movement in the silver market without owning the metal. That said, they carry substantial risk, and hence, you must conduct due diligence and risk management for effective trading.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Please read the SEBI-prescribed Combined Risk Disclosure Document before investing. Brokerage will not exceed SEBI’s prescribed limit.