Silver Futures Price
The
silver futures price is different than the silver price in the cash (physical) market. Generally, the price of a commodity
for future delivery is higher than the cash price due to carrying costs (insurance, interest, and warehousing fees). This
is called contango. The opposite of contango is backwardation. Backwardation is when the price of a commodity for future delivery
is lower than the cash price Backwardation is normal in a “seller’s market.”
When you trade silver futures, your futures price depends on where you get into the market. After you post
your initial margin, your profit or loss depends on where you enter and exit the market (minus transaction costs).
For example:
The contract size for silver is 5,000
ounces. So each $.01 move equals $50. As the market moves your account value adjusts. If your account value drops below the
maintenance margin a margin call is due. A margin call can be met by offsetting positions or adding money to your account.
Silver commodity futures contract trading can be both highly profitable and extremely risky because
of leverage. Leverage is the ability to control a large quantity of a commodity for a very modest investment. That investment
is called margin. Be certain you understand the risk of trading futures on margin before you consider opening a silver trading
account.
Trading futures is like driving a car without insurance. You save the insurance
premium, but if you crash you will wish that you were insured. If you have very deep pockets or deal with the physical silver product then futures may be for you. If you are a speculator with a limited amount of risk capital
then silver options are a better way for you to invest in the silver market.
