What are Silver Futures?

Silver Futures are based on speculation and there is an element of risk involved in them. For example, Mr. Ram decides to participate in this trade, choosing to buy 5 kg of silver from the futures market. He enters into an agreement to pay Rs 25,000 per kg, taking delivery in June that year, three months after signing the agreement. In June, he takes delivery of 5 kg silver when the market prices are just under RS 24,000, which means that he has incurred a loss of Rs 1,000 per kg at current prices.

Advantages of Trading Silver Futures

Some of the advantages of silver futures are mentioned below:

1. A buyer will not have to spend additional on finding an immediate storage facility, as the physical delivery will take place only in the future.
2. While the agreement is signed on a particular date, a buyer can get additional time to make final payments to settle the amount.
3. An individual has the provision to short sell his/her silver.
4. While not completely liquid, there is sufficient liquidity on offer.

Risks Associated with Silver Futures

Trading in silver futures is not risk free, with some of the risks mentioned below:

1. There is a probability for default risk during such trade.
2. Silver futures can be volatile, with market crashes a harsh reality.
3. Silver prices can fluctuate during the period of a trade and an investor can risk losing a portion of his/her investment.

Expiry of Silver Futures

Silver futures are dated instruments which have an expiry date and an investor should keep this in mind before spending his/her money.

What are Silver Futures Addition 

Demand of Silver 

Investing in silver futures is generally considered safer, similar to gold. When the economy is in a bad condition, investors tend to sell their stocks and invest in precious metals like gold as well as silver. This is due to the fact that the precious white metal can be used as a hedge against inflation, demand as well as prices may increase during high inflation period. 

The demand and prices of silver are highly influenced by various types of factors. One of the big reasons is the monsoons in India which directly impact demand the silver and hence the changes in the prices. Farmers will tend to spend less on non-essential items due to the onset of poor season. Thus, the pricing and demand of silver is heavily influenced by the state of the economy. 

Apart from this, the demand for the silver will also be affected during the times of uncertainty. People will hold on to the precious metals during any kind of civil disturbance or wars because they are easy to carry and generally do not need any verification. The US dollar has an impact on silver pricing as well. A struggling economy is thought to be indicated by a weak dollar. Investors will therefore invest in silver instead of economic activity as a result.

Importance of Silver Futures 

We all know that silver follows the same trend as that of gold and is considered a safe haven asset. At the times of instability, investors prefer to invest all their savings in precious metals which immensely increases its demand and the price of gold increases substantially. As the price of silver is quite less than gold, it is always a wise decision to invest in the precious white metal to enter space.  

Not only this but also the futures offer investors a limit on their capability on their potential losses which attracts hedgers. Futures are widely used by hedgers like portfolio managers, producers, as well as consumers in order to reduce the price risk, protect against inflation, and earn profits from favourable price changes. On the other hand, speculative investors can use silver futures to get coverage to the white metal for a small portion of the price of a contract. 

It is to be noted that in the future market, silver comes with the same risk of huge losses owing to the leverage associated with it, investors can lose all their money. Thus, many experts advise rookie traders to not to invest in futures market unless they have complete knowledge on their preferred risk profile, cost consideration, and time horizon. 

Read More on Silver