How to Buy Silver – Silver ETFs and Other Forms of Silver Trading

Like most of us, you have probably thought about investing in silver, in order to diversify your portfolio with the precious metal. The first question is, how to buy silver? Many forms are available, so it can be hard to choose when first investing into this asset.

This article will discuss where and how you can buy silver, e.g. silver ETFs and other asset forms, whether it be for investing or trading. This precious metal is one of the top 10 commodities, with an interesting history which will be presented in this article. Investing in a silver ETF or other forms of silver is complex, but the following sections will guide you through finding the proper form and broker for it.

The good news is that today it is much easier for anyone to invest in this metal, as you can buy silver fully online. The aims of this article are to support you in your silver investment journey by providing information on:

  • Different forms of silver trading, including silver ETFs
  • The history of silver trading, including the biggest speculation in silver 
  • WallStreetBets and a silver short squeeze

Whether your first commodity to buy should be silver or not is for you to decide. We strongly suggest contacting an investment advisor, as this article is not intended to be investment advice under any circumstance.

How to Buy Silver
Silver ETF and other forms of silver trading

Alright, so after weighing your goals and options, you've decided you'd like to buy silver. That's a good start. Let's see what lies ahead of you before you can officially state that you have a position in silver. If you'd like to buy silver, there are two important things you need to do:

  1. Decide which form of silver you would like to trade.
  2. Find a broker that provides that form of silver and whose conditions suit your needs.

Below we will go through the pros and cons, and the potential fees you may encounter in each product category, namely:

Silver ETFs

What is a silver ETF? 

A silver ETF is an exchange-traded fund (ETF) that focuses on silver investments. An ETF is a collection of securities (stocks, bonds, commodities and other assets) that often tracks an underlying index. ETFs are similar to mutual funds but they are listed on exchanges, and ETF shares trade throughout the day just like an ordinary stock. This is an easy way for investors to gain exposure to the price of silver, without the inconvenience of storing physical bars of the metal.

Silver ETFs usually track either physical silver or companies that are related to silver. A side note here: securities that track commodities, such as physical silver are usually called ETC or exchange-traded commodity.

If you would like to learn more about ETFs, feel free to check our article on how to buy ETFs online.

Important features of silver ETFs

Can you use leverage or go short?

No, unless you use a margin account

What type of costs can occur?

Commission
Custody fee
Spread
Fees charged by ETF issuers (e.g. expense ratio)

Ticker(s) of silver ETFs*

SLV, SIVR, SIL. AGQ

Further things to consider

Liquidity is usually high
Wide range of silver ETFs available

*These are some of the largest silver ETFs based on assets under management

Best brokers to buy silver ETFs

We selected the best brokers to buy silver ETFs based on whether the broker provides access to a silver ETF and it has favorable ETF fees:

Silver CFDs

What is a silver CFD? 

A silver CFD is a financial contract that pays the difference in the settlement price between the open and closing trades (CFD is short for 'contract for difference'). It is popular for forex and commodities products. For silver CFDs, the underlying asset can be either a silver ETF or silver forex (the above-mentioned silver categories). When you buy silver CFDs, you bet on the price change of the underlying asset. This means that:

  • You don't own the underlying silver ETF. The price of a silver ETF CFD follows the price of silver ETFs listed on exchanges.
  • There is no delivery as in the case of a spot forex market. The price of a silver CFD follows the price of silver forex on the spot market.

 

According to ESMA regulation, the leverage on ETF CFDs is 1:5, while on XAGUSD CFDs it is 1:10. Always use a stop-loss order to manage your risk. It is important to note that even so, you may lose more during gaps (sharp breaks in the price with no trading occurring in between). In this case, the price can jump over your stop-loss level, causing higher losses than you had set up to allow. Please be aware that trading on margin and other leveraged trading strategies could be extremely risky in times of high market volatility. Sharp price moves could quickly wipe out your invested capital.

If you would like to learn more about CFDs, read our article on CFD trading.

Important features of silver CFDs

Can you use leverage or go short?

Yes

What type of costs can occur?

Spread
Commission
Swap (cost for holding a position overnight)

Ticker(s) of silver CFDs

Ticker of the underlying asset, e.g. XAGUSD, SLV

Further things to consider

Silver spot forex CFD market is open 24 hours a day, except on weekends

Best brokers to buy silver CFDs

We selected the best brokers to buy silver CFDs based on whether the broker provides a silver CFD and it has favorable CFD fees:

Silver options

What are silver options?

A silver option is a financial instrument that is a derivative based on the value of silver. Silver options are traded through the Chicago Mercantile Exchange (CME), trading under the symbol SO. An options contract offers the buyer the opportunity to buy or sell—depending on the type of contract they hold—the underlying asset.

A call option on silver means a financial contract that gives the owner the right, but not the obligation, to buy silver at a specified price within a specific time period.

A put option on silver means a financial contract that gives the owner the right, but not the obligation, to sell silver at a specified price within a specific time period.

If you would like to learn more about futures options trading, read our article on futures options trading.

Important features of a silver option

Can you use leverage or profit form price decreases?

Yes, with a put option 

What type of costs can occur?

Spread
Commission
Carry cost (cost for holding a position overnight)

Ticker(s) of silver option

SO

Further things to consider

Great risk management tool if appropriately used

Best brokers to buy silver options

We selected the best brokers to buy silver options based on whether the broker provides silver options and it has favorable options fees:

Silver futures

What are silver futures?

Silver futures are derivative financial contracts that obligate the parties to transact an asset at a predetermined future date and price. Similar to silver forex, silver CFDs and silver options, silver futures are leveraged and complex products. The buyer must purchase or the seller must sell the underlying asset at the pre-set price, regardless of the current market price at the expiration date.

Underlying assets include physical commodities or other financial instruments. Silver is one of the commodities you can trade as a future. In the US, silver futures are primarily traded on COMEX (Commodity Exchange).

If you would like to learn more about this type of trading, read our article on futures options trading.

Important features of silver futures

Can you use leverage or go short?

Yes 

What type of costs can occur?

Spread
Commission
Carry cost (cost for holding a position overnight)

Ticker(s) of silver futures

SI (+month and year)

Further things to consider

Liquidity is high
High margin requirement

Best brokers to buy silver futures

We selected the best brokers to buy silver futures based on whether the broker provides silver futures and it has favorable futures fees:

Silver spot forex

What is a silver spot forex? 

A silver spot forex is a spot commodity based on the price of silver and traded against the US dollar. It shows how much silver is worth against USD.

According to ESMA regulation, the leverage on XAGUSD is 1:10. Please be aware that trading on margin and other leveraged trading strategies could be extremely risky in times of high market volatility. Sharp price moves can quickly wipe out your invested capital.

Taking gaps and volatility into consideration, similar risks are associated with spot forex products as with CFDs. On the forex market, gaps primarily occur over the weekend because it is the only time the market is closed. If you want to learn more, read our article on forex trading.

Important features of silver spot forex

Can you use leverage or go short?

Yes

What type of costs can occur?

Spread
Commission
Swap (cost for holding a position overnight)

Ticker(s) of silver spot forex

XAGUSD

Further things to consider

Liquidity is high
Forex market is open 24 hours a day, except on weekends

Best brokers to buy silver spot forex

We selected the best brokers to buy silver spot forex based on whether the broker provides silver spot forex and it has favorable forex fees:

Taxation of silver trading

Silver differs from gold in that while in the European Union the trading of recognized gold coins and bulllion products is VAT exempt, there is no such allowance for silver trading.

How to Buy Silver
History and the biggest speculation in silver trading

Precious metal performance

As a precious and industrial metal, silver can also be used as an investment. It has been regarded as a form of money and store of value for more than 4,000 years. In 2020, global silver reserves amounted to 560,000 tonnes.

The price, as with commodities, is driven by speculation, supply and demand. The price of silver is notoriously volatile compared to gold because of its smaller market and lower liquidity.

Silver often tracks the price of gold, although the ratio can vary. The gold/silver price ratio was fixed by law in the United States with the Coinage Act at 15:1 in 1972, which meant that one troy ounce (ca. 31 grams) of gold was worth 15 troy ounces of silver.

The market of silver is much smaller in value than the gold market. The London gold bullion market turns over 18 times more monetary value. Due to its smaller size, a single large investor may be able to influence the price of silver in either direction.

Around 60% of silver is used in industry and 40% for jewelry, silverware and silver bullion.

Silver historical price

Source: Katusa research

As seen on the chart above, the price of silver fell sharply during the COVID-19 market crash in the spring of 2020, but it recovered quickly, rising 114% after the crash. The overall increase of silver was around 48% for 2020. In comparison, the S&P 500 Index rose 16% in the same year. In the first month of 2021, the price of silver went up 2.2%, while the S&P decreased by 1.1%.

The chart below shows the performance of other metals compared to silver. A strong correlation can be seen between silver and gold. Both instruments traditionally perform well in times of rising inflation.

Precious metal performance

As seen from the data, when silver booms it can move really fast, but the price can collapse just as quickly. In the last 50 years, there were two huge silver crashes. The biggest speculation in the history of silver relates to the Hunt brothers and occured in 1980.

Silver and the Hunt brothers

One of the biggest speculations in history on the commodity market took place more than 40 years ago. The Hunt brothers managed to drive up the price of silver more than sevenfold before it eventually collapsed in 1980.

The story began when the oil magnate father of the infamous Hunt brothers died in 1974, leaving his two sons Herbert and Nelson a fabulous fortune. The brothers thought they would try their luck in the commodity markets, choosing silver with the consideration that inflation would drive up the price of the gray precious metal.

They started buying both physical silver and futures from their huge fortunes, but they asked for the futures in physical delivery instead of settling the transaction in cash. This led to the price of silver rising from $7 per ounce to almost $50 in 1979.

However, the brothers' wealth of $1 billion was not enough to corner the entire market, so they began to take out significant loans. They convinced more and more wealthy people to buy silver as a protection against inflation. As an increasing number of large investors, including wealthy Saudis, lined up behind the Hunt brothers to buy silver, US regulators began to pay attention to the brothers’ activity on the silver market.

By that time, two-thirds of all the silver on the market was in their possession.

Market players with short positions in silver started to panic when it turned out that there was less silver on the market than they would need to buy back in order to meet their delivery obligations, creating a so-called short squeeze. At their peak, the Hunt brothers’ wealth reached $4.5 billion.

The US government began to worry about the nation’s silver reserves being manipulated in the market. Therefore, Commodity Exchange Inc. (COMEX) adopted "Silver Rule 7", which placed heavy restrictions on the purchase of commodities on margin. As margin requirements increased, the price of silver dropped over 50% in just four days and the Hunt brothers were unable to meet their obligations, leading to market panic.

However, the Hunt brothers could still obtain credit, therefore the Fed banned speculative lending in order to stop them. And then came the day that history books refer to as Silver Thursday: March 27, 1980, when the Hunt brothers were unable to meet the deposit requirements on one of their loans. That was when the silver market collapsed, as they were forced to sell their positions in silver in order to repay their loans. Silver dropped from $48.7 to $11.

The bankruptcy of the Hunt brothers caused much chaos, but they were rescued by a consortium of private banks and companies. It took nearly a decade to get rid of their huge silver reserves and settle their debts to creditors. In 1988, they were found responsible on civil charges of conspiracy to corner the market in silver, which forced them to declare bankruptcy, in one of the biggest such filings in Texas history.

How to Buy Silver
WallStreetBets and a silver short squeeze

Silver options volume

In the last weeks of January 2021, some unprecedented market events took place. A group of people on Reddit, a so-called subreddit forum WallStreetBets started buying cheap, out-of-the-money call options on stocks and achieved spectacular results, driving up the underlying stock price, which led to extreme increases in stocks like GameStop (GME) and AMC. As focus shifted to these shares, a short squeeze developed which quickly pushed prices even higher.

When people buy call options speculating that stocks will rise, the market maker sells these options and immediately buys the stock as collateral (this is called a delta hedge). The more people buy call options, the more shares the market maker has to buy, which pushes the price of call options even higher, generating even more purchases, and so on, in an upward spiral.

The inverse of this can also happen. In this case, when someone buys put options, the market maker sells these options (short put) that should each be covered by a stock sale. The more people buy put options, the more shares the market maker has to sell. As stock prices fall, OTM put options rise in delta, so the market maker has to sell even more. It is a downward spiral. This phenomenon is also called a Gamma squeeze in option language.

In the last week of January, WallStreetBets turned its attention to silver, aiming for a similar short squeeze in the physical metal as what happened with GameStop. To make this possible, WallStreetBets-led investors needed to:

  • buy iShares Silver Trust (SLV)
  • buy other silver ETFs
  • make an impact on the futures market
  • force option market makers to keep buying SLV in order to maintain their delta hedge

 

Below we will take a look at what happened in the silver market after this, and whether it is possible for retail investors like WallStreetBets to short squeeze silver.

Interest booming

If you look at the options volume and call skew of silver, both reached new highs compared to the summer of 2020:

Silver options volume

Another data from Bloomberg is volatility, which increased extremely:

Volatility and silver trading

This graph shows the daily inflow of silver shares, which was the largest in five years:

Daily inflow of silver shares

Another interesting development in silver was that its futures were in backwardation in February 2021, which is very rare in this market. This is a market condition where the price of a commodity's forward or futures contract is trading below the expected spot price at contract maturity. This previously happened in:

  • March 2020
  • September 2015
  • February 2011

After these periods of backwardation silver rose significantly.

All these figures indicate that interest in silver has grown significantly. Where is this money inflow coming from?

According to the latest Commitment of Traders report, a weekly publication that shows the aggregate holdings of different participants in the US futures market, over 80% of long positions were held by hedge funds, swap dealers, industrial users and producers.

High barrier to entry

In the case of commodity futures, the barrier to entry is much higher for retail traders like WallStreetBets:

  • High initial and maintenance margins: $15,000 for standard silver futures, for physical delivery of 5,000 oz.
  • Complexity of instruments and their high degree of leverage to the underlying commodity.
  • Market access is more complicated: it cannot be traded on discount broker platforms like Robinhood, for example.

This means that you cannot simply open an account with a $1000 balance and start trading silver in the futures market. At least $100,000 is needed to trade exclusively in futures.

According to the Commodity Futures Trading Commission, the value of all open silver futures contracts on the Chicago Mercantile Exchange at the end of January 2021 was $21.4 billion, with 44% coming from hedge funds. This market is too big for retail investors like WallStreetBets to create the same kind of volatility as they did with GME.

On a global comparison, the market cap of silver is small. You can see the differences compared to other industries in the chart below (data based on early February 2021):

Market cap of silver and other industries

There are also huge differences between precious metals, as the gold mining industry for example is 20 times larger than that of silver mining. And even both of these combined are smaller than Tesla.

Target: mining firms?

So is there anything related to the silver industry that these Reddit players can possibly short squeeze at all?

One possibility is if they target silver mining companies with secondary listings on the NYSE or the NASDAQ. These stocks have seen their volatility increase in recent weeks, but compared to the stocks whose trading was restricted at Robinhood, the trading volume in silver mining stocks is very low.

The mining companies in question are:

  • Pan American Silver (PAAS)
  • Hecla Mining (HL)
  • Mag Silver (MAG)
  • Fortuna Silver (FSM)
  • First Majestic Silver

Other than First Majestic Silver, institutional short positions in these stocks are below 5%. In comparison, it was more than 100% at GameStop prior to the short squeeze. That is a huge difference.

Thus, the lack of short interest means no silver short squeeze for WallStreetBets.

How to Buy Silver
Bottom line

As a precious and industrial metal, silver can also be used as an investment. It is one of the top 10 commodities, and there are several different forms for silver trading or investing:

  • Silver ETFs
  • Silver CFDs
  • Silver options
  • Silver futures
  • Silver spot forex

A strong correlation can be seen between silver and gold. Both instruments traditionally perform well during times when inflation rises. Silver differs from gold in terms of taxation.

Interest towards silver has grown: the daily inflow of capital into silver shares is the largest in five years. Silver options reached new highs compared to the summer of 2020.

Silver futures were in backwardation in February 2021, which is very rare in this market. After the last three periods of backwardation silver rose significantly.

According to industry reports, over 80% of long positions are held by hedge funds, swap dealers, industrial users and producers.

Currently, there is a lack of short interest on the silver market, which means no silver short squeeze for WallStreetBets.

Therefore, the biggest speculation in silver history remains the one carried out by the Hunt Brothers.

Author of this article

Krisztián Gátonyi

Author of this article

Krisztián has 10+ years of experience in proprietary trading in the interbank currency market as a foreign exchange risk manager. He is interested also in real estate and dividend growth investing. His purpose is to help people find the best investment provider.

Krisztián Gátonyi

Senior Broker Expert

Krisztián has 10+ years of experience in proprietary trading in the interbank currency market as a foreign exchange risk manager. He is interested also in real estate and dividend growth investing. His purpose is to help people find the best investment provider.

Everything you find on BrokerChooser is based on reliable data and unbiased information. We combine our 10+ years finance experience with readers feedback. Read more about our methodology

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