CFD TRADING ON SILVER – HOW TO & STRATEGIES
Silver has always been one of the most sought after metal along with Gold and is a top-traded white metal community. The characteristics of the metal include pliability, malleability, and versatility. Apart from this, Silver is also bacteria resistant and a good conductor of electricity, which makes it useful for a range of industries such as utilities, medicine, jewelry, and electronics. However, there is very little silver left in the earth’s crust after what has already been mined.
Is the silver trade worthy?
Silver has been synonymous with currency throughout the ages, as evident from the British pound. The pound is so named as it was once equal to one pound of silver. Despite not being as valuable as Gold, there a couple of reasons which make the silver trade worthy.
- Silver is considered a haven especially in times of economic turmoil, besides having numerous industrial applications.
- When applied to trading, it is relatively volatile compared to other precious metals which result in bigger returns during bull markets.
- It also has a lower cost of entry compared to other precious metals. For instance, an ounce of silver approximately costs 40 to 80 times less than an ounce of gold.
- If a trader adds Silver in his/her equity-only portfolio, it can significantly lower the volatility of the whole portfolio. This is due to there being no correlation between silver and other asset classes.
- Silver, like most other commodities, is independent of the value of currencies. As a result, it will hold value, even if a particular currency crashes during inflation.
- Silver is one of the assets that can experience periodic high volatility and wild price swings. Traders can use silver CFDs to try and take advantage of these fluctuations and make a profit.
- By investing in silver CFDs, traders can avoid the inconvenience of paying for silver storage. It also allows traders to trade silver in both trading directions. This means that no matter whether the trader has a positive or negative view of the price forecast for silver, they can profit either from the upwards or downwards price movement.
Understanding silver trading on CFD
Before diving into how CFD trading on silver occurs, we need to understand more about CFD trading. CFD or Contracts of Differences are financial contracts, where the difference between the opening and closing trade prices are paid in cash. It essentially allows investors to trade the direction of asset or security over the short term. CFDs also allow ample margin trading and are cash-settled. That means, investors only need to put up a small amount upfront.
When trading CFDs for silver, it’s usually efficient. The margin requirement, or the amount one has to put up to enter a trade, is usually a mere 0.5% in the case of silver CFDs. This gives the trader leverage of 200 to 1 on their money. Depending on the type of broker chosen, the trader can trade on the spot price or current price of silver. You can also take out a contract on the price for a future date.
This can be explained with the help of a CFD example.
Suppose that a trader wanted to take out a CFD for a long position in silver after he/she anticipated that the price will increase. The trader may be quoted 20.44 to 20.49 for a lot size of 500 ounces. Probably the trader’s biggest advantage is that he/she is not restricted to lot sizes offered on standard futures contracts. Again, depending on the type of broker the trader chooses, a long contract of 500 ounces could be valued at $10245. The margin requirement, in this case, could be a mere $50.
Now, suppose the price goes up to 20.72-20.77 and the trader closes his/her position. The points gain will be 23(20.49 to 20.72). This makes the value of the contract $10360. The resultant gain is $115 for a margin of $50.
However, traders should always remember that leverage is like a double-edged sword as leverage can work against them if they are not careful. This makes it crucial for the trader to cut their losses as soon as they are aware that they don’t have a winning position in a particular trade.
Silver market trading hours
The Silver market is open 24 hours, 6 days a week. In the case of trading CFD on silvers, traders can follow silver prices live on whatever broker they have chosen. For example, if they choose a broker like IQ Option, they can view a comprehensive silver price chart. The typical market trading hours for silver are mentioned below:
- Monday to Thursday: 00:00 to 21:00 and 22:05 to 00:00
- Friday: 00:00 to 21:00
- Sunday: 22:05 to 00:00
How to trade Silver CFDs in IQ Option
IQ Option is one of the most reliable brokers for CFD trading in the market. It provides a fast and smooth trading platform which makes it easy to diversify trading. This is coupled with advanced apps for mobile devices. At IQ Option, traders can trade CFDs on stocks, commodities, forex, and cryptocurrencies. It has an easy sign-up process after which a trader can freely trade CFDs in any commodity they wish, including silver. With favourable trading condition and a small minimum deposit requirement, it provides a good entry point for CFD trading.
IQ Option provides CFDs on silver, which is listed as Silver (XAG) under commodity CFDs. The silver CFD trading page in IQ Option has two instantly noticeable buttons: Buy and Sell. Trader’s sentiment is also shown. The price-performance of the asset is shown in the range of 7 days to 5 years.
IQ Option also provides an extremely useful news feed at the bottom, which constantly provides the most reliable news regarding silver from authoritarian sources.
The minimum deposit is $10 only, but you can use a free demo account too.
Silver CFDs trading strategies
Before we dive into the trading strategies for silver CFDs, we should understand the drivers of its price. Particularly, silver is driven by 5 major factors.
- Inflation and Dollar valuation: Traders often perceive silver as a trustworthy store of value during periods of inflation. This results in an inverse relationship between the price of USD and silver prices, where the former decreases when the latter rises in value.
- Price of Gold: Silver has always had a positive correlation with Gold and thus tends to follow its price direction.
- Industrial demand: As silver is heavily used in the automotive, electronics, and healthcare industries, the demand in the respective industries also has a positive influence on the price of silver.
Trading Silver CFDs effectively requires some strategies that are based on the market. With each move in the market price, the CFD silver trade will experience fluctuation. Traders are also suggested to use a demo account before they invest in any real money.
IQ Option provides a great option to open a demo account, where traders can practice silver CFD trading using virtual funds. They can use this to build their skills and confidence before they dive into the real market. Some of the strategies are highlighted below.
- Focusing on silver price: Before one starts trading silver, traders need to analyze the market to determine how it is behaving. Their next move will be dictated by how volatile or stable the market is at the moment.
- Researching on movers of price: Traders need to stay alert at all times to gulp up the potential opportunities that come their way. Using the tools and indicators provided by IQ Option can help traders know when exactly to buy and sell.
- Leverage: Novice and beginner traders should start trading silver CFDs by always limiting their leverage. The higher the leverage is, the risk entailed gets higher as well.
- Stop-loss order usage: Stop-loss orders should be used by traders to limit risking everything when trading CFDs. Traders should set up stop losses to give their brokers the instruction to automatically close a trade once it reaches a certain level.
- Putting all eggs in a basket: CFD silver trading can be profitable when used right. However, there is always the factor of uncertainty in the market. Hence, smart traders always do not invest in only one kind of commodity. Brokers like IQ Option provide traders with a range of instruments and CFD trading options to diversify and profit wisely.
Whatever strategy the trader chooses, he/she has to always keep in mind that no strategy is fail-proof. Trying several strategies before going for a particular one is preferred in this case.
Conclusion
Trading silver requires a lot of research and awareness from the trader, especially due to the market’s occasionally high volatility. Despite there being a lot of instruments related to silver in the market, such as derivatives, futures, and stocks, silver CFDs still provide the most accessible way to profit from the precious metal. That being said, choosing a broker like IQ Option will alleviate much of the doubts that normally come to a trader’s mind. The customer service staff is responsive and can help traders out with whatever queries that may arise during trading.