Commodities explained for Beginners

Gold and Silver are precious metals that has been known to man since the olden days. Investing in Silver and Gold dates back to prehistoric times when man explored, mined and used these metals as a form of money and treasure.

Silver is a shiny white metal that is ductile, malleable and exhibits an extremely high electrical and thermal conductivity when compared to other metals.

Many years ago, Silver and Gold coins were used as mediums of exchange and were also valued as treasured metals.

Silver is a naturally occurring element, but it is usually combined with Sulphur, Arsenic, Chlorine, and many other ores. As a result, its production comes from extraction process such as amalgamation or electrolysis.

It is also found as alloys with other metals; several metal production companies obtain Silver as a by-product from the mining of other metals like gold, copper, zinc, etc.

In these modern times, Silver is an industrial metal that is in high demand because of its many properties and applications.

Its high electrical conductivity is utilized in the production of solar panels, electrical contacts, printed circuits, and conductors. As a good reflector, it is used in mirrors and silver-coated surfaces. It is used in silverware, jewellery, and as a precious metal used to store wealth. Silver is also used in medicine, dentistry, and photography.

In the financial markets, Silver is classified as a hard commodity; this is because it is mined, bought, and sold in standardized quantities and quality. Other hard commodities are Gold, Copper, Brent oil, etc. So, how are commodities traded？ There are various methods of trading different commodities. Below are some of the available options of investing in Silver commodity:

Investing in Silver Coins and bullions

Though it is no longer used as a form of money, silver coins and bars are still available. Some investors still prefer to hold or keep the physical Silver for many reasons such as to preserve their wealth, hedge against inflation or bad economy, etc.

With Silver bullions in hand, there is no fear of internet hackers who steal traders online accounts, credit card details, digital assets, etc. The metal is durable and can easily be sold anywhere. However, Silver coins or bars can be stolen; so, the investor must find a way to safeguard his hard assets.

Exchange Traded Funds (ETFs)

ETFs generally pool together a group of assets into one asset that is traded on the stock exchange just like stocks. Silver ETFs are traded on major stock exchanges and they track the price of Silver. According to ETF.com, about 10 Silver ETFs are traded in the U.S. markets with a total assets management of $18.25 billion. Investors can speculate or buy into the shares of these Silver ETFs and sell when the price appreciates. ETFs offer lower taxes, and the fees are lower when compared to mutual funds.

Investing in Silver Stock

Another way of investing in Silver commodities is by owning shares of the companies that deal directly with Silver. This could be Silver mining companies such as Coeur Mining Inc., Pan American Silver Corp, etc. or Silver streaming companies such as Wheaton Precious Metals Corp. Streaming companies does not own or operate mines, rather they buy Silver and other metals from mines usually by making advance payments before the Silver is mined.

The aim of stock market investors is usually to earn dividends anytime the company shares its profits or to keep the company shares and sell later at a profit. Their overall aim is to buy low and sell high. Today, we have stock market traders who deploy various strategies to speculate on the stock market. These traders may buy and sell different company shares with the sole aim of making profits from the price fluctuations.

Silver Options

These are options contracts in which the holder has the right but not the obligation to buy the underlying Silver commodity at an agreed strike price upon contract expiry. It is available for trading on the NYMEX and on some online broker platforms on over the counter (OTC) basis. ‘Put options’ are bought when you expect a decline in price while ‘call options’ are bought when an increase in price of the underlying silver commodities is expected.

‘Silver options’ can be good for speculators who wish to try to take advantage of the price movement of the commodity.

Silver Contract for Differences (CFDs)

CFDs are traded through numerous online brokers that offer their services through the internet. Silver CFDs are contracts made between brokers and traders enabling traders to only speculate on the prices of the underlying Silver commodity without physical delivery of the Silver bullions.

The brokers provide the background technology, servers, etc but offer the traders a software platform on which all orders are placed. The CFD trader places a ‘buy’ order if his analysis predicts a price increment but places a ‘sell’ order if he concludes that a price decline is imminent.

The CFD trader stands a chance of potential profits if his predictions are correct and the market moves his way, otherwise, it will be a loss. CFDs are OTC products and so, different brokers have their own contract specifications, services offered and operation guidelines.

It is often hectic for new traders to find a reliable broker because of several reasons such as charges, assets offered, trading platforms available, scam brokers, minimum deposit, etc.

Authors Biography

Bola Akinya is a Forex trader and consultant with more than 20 years of immense experience in Forex Indices, Commodities and Currencies.

Prior to becoming a professional Trader, she held positions as a Head of Sales/Business Developer with Credit Registry and Operations Manager with Peak Merchant Bank both in Nigeria before moving to UK where she worked with great companies like AIG and The Wealth Training Company as Course Instructor and Speaker for over 15 years on the FX and Stock Markets before, she started her own company – The Learn and Earn Forex Training Company over 5 years ago.

Over the years, she learned 121 from Top traders all over the UK which enabled her to develop her own unique strategies and trading systems that has made her a successful trader and Trainer.

She is married with 2 boys and 2 cats.

With the combined use of Fundamental and Technical analysis, she trades on the short term – medium term, as well as Economic News releases, combining both to give the consistency that is required for successful trades.