Is There Money To Be Made In Trading Silver Commodities?
The possibility of taking delivery on a commodity expands trading strategies since it allows for additional hedging, using a combination of
spot and futures contract trades. It also allows for pure spot trading with local merchants. 'Spot trading' means buying and selling the actual
commodity, as distinguished from trading futures contracts in which actual delivery, for most traders, is rare.
Another advantage of silver is its relatively low per ounce price. Silver has traded in the range of $5-$15 per ounce for decades. Like
lower-priced stocks, those prices make silver more accessible to the average investor in quantities large enough to make substantial profits.
That price range doesn't sound good to someone used to trading stocks and seeing them rise to ever greater heights over the years. But
factoring in inflation, those stock prices don't always look so good. Silver, like gold, is one way to measure real prices.
Traded on COMEX (The Commodity Exchange of New York) and elsewhere, the standard contract size for silver futures is 5,000 troy ounces. A
'troy' ounce is 1.1 times the common avoirdupois ounce used in cooking and packaging. COMEX is a division of the New York Mercantile
The tick (minimum price fluctuation) is $0.005 per troy ounce. With a minimum of 5,000 troy ounces, that makes a tick worth $25. That's a
substantial change to those used to stock prices which move around 10 to 25 cents per share, but multiplying by 100 shares brings it in the same
range. In any case, it's a normal amount in commodities trading.
A standard price quote may appear as:
Contract Date Last Change Open High
Jun '06 (SIM06) 1014.8 -3.7 1013.8 1014.8
The contract date specifies the expiration month and year of the contract. The specific date is set by the exchange. The characters in
parentheses are a standard abbreviation for a futures contract. SI is silver, M is the short form used for June and 06 specifies the year, 2006.
The others represent familiar price quote columns.
The prices are specified in cents per troy ounce, hence 1014.8 would be equivalent to $10.148 per ounce. One contract at $10 per ounce, for
5,000 ounces is therefore an investment of $50,000. For the average investor, that's a substantial chunk and one of the reasons futures and
options - which allow investing around 5% of that - are so popular.
One caveat: silver prices - like those of any commodity - are volatile. In May 2006, the silver price peaked at over $15 per ounce. It
promptly retraced to around $10 per ounce. But, as with any other form of trading, what counts is not the absolute price or even solely the
trend. Profits are measured by the difference between buying and selling prices and that means timing is essential.