Spread Betting on Silver


Silver as a Commodity

Silver Spread Betting - US $ 5 Silver Certificate
  1. Like gold, silver is a precious metal and is considered a form of money and a store of value. However, in 1971, President Nixon put an end to the gold and silver standards in the USA which saw gold and silver losing their role as legal tender in the country.
  2. China is the biggest consumer of silver and over the last few years have been actively encouraging their citizens to invest in the metal. This could be of the incessant money free printing activity that the USA government has embarked on which has seen the federal reserve increasing its monetary base from $800 Billion to over $2 Trillion. This is basically equivalent to the government issuing $1.2 Trillion out-of-thin air 'money' which is prone to push inflation up and lower the purchasing power of existing money in future. This can be further appreciated when one considers that China is the largest holder of USD Treasury Securities which implies that China will be negatively impacted if the dollar loses some of its 'purchasing power'. And that's why the Chinese powers are motivating their people to start investing in silver.
     

  3. Silver does tend to move more in tandem with Gold although it attracts less interest. Half of the demand for silver comes from industrial applications. For instance silver is a good conductor and is used in electronics such as mobile phones and in the pharmaceutical market where it is a natural anti-bacterial metal, this demand has been sufficient to offset the drop from photography films.
  4. You can invest in silver in several ways: bars, coins, rounds, via ETFs, certificates, accounts, derivatives, shares in mining companies or spread betting.

Tips for Spread Betting on Silver

  1. Note that daily spot gold and silver spreadbets expire against the cash price of the respective precious metals. Closing time for the Spot Silver market is 22.00 (London Time). It is important to note that with some spread betting firms will expire daily bets without spread.
  2. Again, a point is represented by 1/10 of a cent move in the cost of a silver ounce with the margin requirement being around 3% of the effective exposure (if silver is trading at $14, taking the minimum bet of £1 this would equate to an exposure of $14,000).
  3. If you are considering spread betting silver do consider using guaranteed stops as the market in silver is tiny and very volatile meaning that when the price slips it can move very fast... Silver usually follows the price of gold but often to a far greater degree which can offer opportunities to traders who don't mind the extra risk. This means that silver tends to outperform gold when prices are rising and vice-versa when they are falling. Another tip, instead of getting in at £25 a point for instance, consider building your position up slowly - so for example staking say £5 a point at $11.06, another £5 if the price moves up to $12, another £5 at £13 etc - using the gain on each winning position as margin for the next.
  4. Spread betting providers make use of hedging in the underlying futures markets in order to cover themselves on the spreadbets they accept, but obviously they do not wish to take delivery of silver or oil, for example. Thus, futures bets that are linked to physical delivery are always settled plenty of time in advance of the actual delivery date on the future. This means that a spreadbet on, say, September Silver might expire in August rather than in September.
  5. Please note that spread bets are priced on future contracts which trade at a different price to the prevailing cash price. Comparing the cash (spot) price of silver in early March with the futures price of silver say, for delivery in May, we might see that the Daily Spot Silver might be trading at 2003 per ounce while the May Silver might be trading at 2009 per ounce. In this instance the May Silver price is trading at a higher level than the cash price and the difference is not because your spread betting provider has skewed the odds or thinks that the price of silver is likely to rise. In practice, the price of a future is affected by a number of variables which have to account for the cost that would be incurred in storing the physical commodity to the expiry date (also referred to as 'cost of carry') as well as market sentiment.

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