Silver is a commodity that is attractive to many investors because of its unique qualities. It is much like gold and some other commodities because private investors can actually take delivery. However, it is unlike gold in two respects. One, the price of silver is feasible and within reach. Two, physical storage can be obtained without much of a problem and security can be simplified. Often a bank safe deposit box is sufficient.
The ability to take delivery of a commodity increases the choices in trading strategies. There is room for hedging by using a combination of spot and futures contract trades. Pure spot trading with local merchants is also more of a possibility. Spot trading is a term that means the buying and selling of the actual commodity. This is different from the trading of futures contracts because the delivery of the commodity is generally rare.
Silver also has the advantage of bearing a relatively low price per ounce. For many years, silver has traded for anywhere from $5 to $15. These lower prices make silver easier to acquire and more accessible to the average investor. Investors can obtain quantities that are large enough to show desirable returns due to this low amount.
For someone who is accustomed to trading stocks on a regular basis and who may have reached the occasional astronomically high returns, this may not sound like such a great deal. However, when inflation is factored in, even the high return stock prices may not look so appealing. Silver is much like gold in that is provides an accurate measure of real market prices.
The Commodity Exchange of New York (COMEX), a division of the New York Mercantile Exchange and in other exchanges, the standard contract size for futures in silver is 5,000 troy ounces. To put this in perspective, a troy ounce is 1.1 times the common avoirdupois ounce that is commonly used in standard measurements like cooking and packaging.
The minimum price fluctuation, known as a tick, is $0.005 per troy ounce. One tick that is the minimum of 5,000 troy ounces, is worth $25. When compared to mainstream stock prices that range from $0.10 to $0.20 per share, it presents a drastically different landscape. However when those same shares are multiplied one hundred fold to represent 100 shares, it brings the investment into a more "typical" range. While some are larger and some are smaller, this does, indeed, represent 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
Low Date/Time
1012.8 12:29
To break down the price quote, the contract date indicates the contract's month and year. The precise date is set by the exchange. The characters that are in parentheses represent a standard abbreviation for a futures contract. The abbreviation "SI" is silver, "M" represents the month of June and 06 indicates the year of 2006. The other figures show familiar price quote columns.
The prices of the silver are broken down to cents per troy ounce. This means that 1014.8 is the equivalent of $10.148 per ounce. This means that one contract that is $10 per ounce for 5,000 ounces bears an investment value of $50,000. This may be a little steep for the casual or average investor. This is one of the primary reasons that futures and options that allow investments of approximately 5% of that amount are so popular.
One drawback to silver investments is that the prices, like nearly any other commodity, are volatile. May 2006 saw some rather significant fluctuations, peaking at more than $15 per ounce, the dropping back to $10 per ounce. Bottom line, though, with any type of trading, the absolute price is not what is important. In fact, it is not even the trend alone that has magnitude in the market. The profits on investments are measured by the difference between the buying price and the selling price. This is what makes timing so crucial.
