Beginners Guide Trading Silver Futures

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Futures Basics & Essentials:The Beginners Guide to Trading Silver Futures

Futures Basics & Essentials: The Beginners Guide to Trading Silver Futures


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About the eBook Creator

Drew Rathgeber is a senior broker at Daniels Trading. He has been heavily involved in numerous

facets of the silver & gold community for over 10 years and has a firm understanding of how

the intricacies of the silver markets work. He started his career trading physical spot metals

dealing in silver and gold, coins and bars. In 2006, he became a licensed Series 3 trader, trading all

futures markets, but specializing in precious metals. Drew has handled everything from complex

deliveries to physical hedging, and has seen it all when it comes to the precious metals complex.

He also authors a newsletter titled “The Rath Overlay” that is published on a weekly basis to help

the everyday trader further their understanding of the futures markets.

Authors Note: I remember when I was trading the physical and spot market, silver futures seemed very intimidating, so I had

the idea to create this Beginners Guide to Silver Futures to help everyday people. Remember, these are real markets with real

money. Undoubtedly, there are many schemes and ways of going about investing in silver. Still, the futures market is by far the

most cost effective solution, and one could even call it the “Wholesale Market” when compared to Physical, Spot, or ETF’s. Any

investor that has ANY silver allocation should learn silver futures. Initially, there will be a few difficult concepts to learn and

understand, but stick with it and you will learn and appreciate the significant advantages of silver futures.

When it comes to the silver market, you need a professional trader that talks straight. I’m here to help and have more than

a decade of experience to share with you.

Direct Phone: 1-312-706-7657

Toll-Free: 1-866-276-1475

Email: [email protected]



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Introduction

Thank you for requesting “The Beginners Guide to Trading Silver Futures” eBook. This eBook is designed to help you

understand silver futures and how you can trade these precious metal instruments. Once you learn silver futures, you will

eventually learn the entire precious metals’ complex.

Who will benefit most from this course? This course is intended for those who seek to understand where the professionals

and wholesale market trade precious metals. This course is for those who want to know how futures contracts work, what the

details of the margins and market hours are, and those that are looking to develop tremendous in depth knowledge.

What are Silver Futures? Offered in (3) sizes: Full size 5,000oz, miNY 2,500oz, Mini 1,000oz. These units are referred to

as contracts, and they are alternatives to bullion coins, mining stocks, ETFs, and financed transactions. Silver futures are an

extremely cost-effective way to trade these products (wholesale), without the high fees that bullion dealers and

ETFs transactions carry. If you can learn spot metals trading, you can learn futures, and then you will realize the significant cost

savings and flexibility of silver futures, which is especially apparent when compared to spot bullion dealers.

Regulated Marketplace – Silver futures are financial instruments traded in an open, online marketplace that are backed

by the exchanges. Investors are protected from default on a futures contract by the exchange’s sophisticated risk

management and surveillance techniques. The ‘exchange’ itself provides the integrity for each and every transaction. It’s a

whole market – for every winner, there is a loser. The silver futures markets are also monitored by the Commodity Futures

Trading Commission (CFTC) and National Futures Association (NFA).

Almost 24hr Market – The silver market opens on Sunday at 6:00pm EST then closes the following day at 5:15pm EST. The

market re-opens at 6pm EST Monday and repeats all week until Friday’s close at 5:15pm EST. The exchange is closed over

the weekend and reopens on Sunday. The silver futures markets only close for 45 minutes each day, except for weekends and

holidays.

Low Participation Cost – Commissions are significantly lower when compared to spot bullion dealers or ETFs. Commission

per contract ranges from $50-$100 per contract. That means you can control 1,000oz, 2,500oz, or even 5,000oz. with

approximately .01 to .03 spread, depending on market conditions. The spread and commission charges can offer cost savings

when compared to other trading instruments.

Electronic Trading – Trading silver futures has become easier with the invention of the internet and electronic trading. You

are no longer required to call your broker to get delayed quotes. Everything is displayed real-time, leveling the playing field for

the everyday trader. However, having a Series 3 licensed silver futures broker can still be an invaluable resource when making

decisions for your account. In particular, an experienced broker can teach you how to understand and manage the inherit risks

in trading precious metals.



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Silver Futures Basics

One of the most overlooked aspects of silver futures is the value of what a contract is really worth in dollar terms. I’m going to

give you a few examples.

Example(s)

Current Silver Futures Price: $22.00Mini Silver Contract: 1000oz

Total Value of a 1000oz at $22.00 X 1000 = $22,000.00

miNY Silver Contract: 2500oz


Full Size Silver Contract: 5000oz


The current purchase price for delivery of a 1000oz bar is $22,000 – excluding any delivery, handling, and insurance charges.

You can pay in full, or use the minimum margin to control 1000oz+.

THE RISK OF LOSS IN TRADING COMMODITY FUTURES AND OPTIONS CONTRACTS CAN BE SUBSTANTIAL. THERE IS A HIGH DEGREE OF LEVERAGE IN FUTURES TRADING BECAUSE OF SMALL MARGIN REQUIREMENTS. THIS LEVERAGE CAN WORK AGAINST YOU AS WELL AS FOR YOU AND CAN LEAD TO LARGE LOSSES AS WELL AS LARGE GAINS.

Minimum Overnight Margin: $2,321

Note: You can control a 1000oz bar with as little as $2,321, but you must realize that you are controlling $22,000 worth of

Silver in this example.

Minimum Day Trading Margin: $1,160.50

Note: You can control a 1000oz bar with as little as $1,160.50 in day margin, except if you buy and sell on the same day, this

low margin amount does not apply. Note that this example also assumes you are not holding any overnight positions at the

electronic market close.



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Market Fluctuation

For every .01 cents the market moves up or down, your account balance will go up or down, $10.00 for 1000oz, $25.00 for

2500oz, & $50.00 for 5000oz.

Leverage

Leverage allows a trader to control a greater investment, but leverage also heightens a trader’s risk, and thus leverage

magnifies both gains and losses. This is why speaking with a Series 3 licensed trading professional can be invaluable; typically

they will help you manage risk.

Key Points

Contract Value, Fluctuation, Overnight, Day Margin



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Full Size Contract (5,000oz)

Product Symbol SI

Exchange CME Globex, CME ClearPort, Open Outcry (New York)

Hours(All times are EST)

CME Globex: Sunday – Friday 6:00 p.m. – 5:15 p.m. with a 45-minute break each day beginning at 5:15 p.m. CME ClearPort: Sunday – Friday 6:00 p.m. – 5:15 p.m. with a 45-minute break each day beginning at 5:15 p.m. Open Outcry: Monday – Friday 8:25 AM to 1:25 PM

Contract Size 5,000 troy ounces

Price Quotation U.S. Cents per troy ounce

Minimum Fluctuation Outright transaction including EFT: $0.005 per troy ounce. $25.00 per tic.

Termination of Trading Trading terminates on the third to last business day of the delivery month.

Listed Contracts Trading is conducted for delivery during the current calendar month; the next two calendar months; any January, March, May, and September falling within a 23-month period; and any July and December falling within a 60-month period beginning with the current month.

Settlement Type Physical

Delivery Period Delivery may take place on any business day beginning on the first business day of the delivery month or any subsequent business day of the delivery month, but not later than the last business day of the current delivery month.

Grade and or Quality Specifications

Silver delivered under this contract shall assay to a minimum of .999 fineness.

Exchange Rule These contracts are listed with, and subject to, the rules and regulations of COMEX.

Source: http://www.cmegroup.com/trading/metals/precious/silver_contract_specifications.html

Key Points

5000oz, $25.00 per tic, and trading hours.



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miNY Size Contract (2,500oz)

Product Symbol QI






Minimum Fluctuation Outright transaction including EFT: $0.125 per troy ounce. $31.25 per tic.


Listed Contracts Trading is conducted for delivery during the current calendar month; the next two calendar months; any January, March, May, and September falling within a 23-month period; and any July and December falling within a 60-month period beginning with the current month.






Source: http://www.cmegroup.com/trading/metals/precious/silver_contract_specifications.html

Key Points




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Mini Size Contract (1,000oz)

Product Symbol SIL






Minimum Fluctuation Outright transaction including EFT: $0.001 per troy ounce per tic $1.00.


Listed Contracts Current calendar month; the next two calendar months; any January, March, May, July, September, and December falling within a 12-month period.






Source: http://www.cmegroup.com/trading/metals/1000-oz-silver-futures.html

Key Points


The mini market, in my opinion, should be mastered by EVERY silver investor. It’s an extremely versatile market with a

terrific cost structure.



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Silver Futures vs Silver ETFs & Spot

Silver ETFs

The Silver ETF (SLV) is deemed a commodity pool by the CFTC, and essentially resells futures with added costs and a unique

fee structure. Often, the price does not follow the Futures price, which could possibly cost the investor even more.

When deciding to invest in silver ETFs, consider this excerpt from Wikipedia in regards to SLV:

“The most popular silver ETF (iShares Silver Trust, symbol SLV) has been compared with mortgage-backed securities due to its complexity.”

Source(s):

http://en.wikipedia.org/wiki/Silver_exchange-traded_producthttp://us.ishares.com/content/stream.jsp?url=/content/en_us/repository/resource/prospectus/is_p_slv.pdf

Silver Spot

The spot market is like the wild wild west. With so many different characters, it’s hard to know exactly who or what you’re deal-

ing with. I personally believe that most in the market use “Bait n’ Switch” tactics. These are NOT regulated entities, and you’re

typically bound by a contract that turns your hard earned money into mostly commissions. See examples below.

Example using Spot 1000oz at $22.00 Silver

Silver Bar: $22,000

Spread 2.0%: $440.00

Commissions 2.0% $440.00

Total Spread & Commission: $880.00

Example using Futures 1000oz at $22.00 Silver

Silver Bar: $22,000

Spread .01-.03: $10.00 - $30.00 (Estimate)

Commissions: $50.00-$100.00 (Estimate)

Total Spread & Commission: $60-$130 (Estimate)

Note: The cost savings in the example above are apparent. After reviewing an example like this, the importance and advan-

tage of futures is obvious and glaring.



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Example using Spot 5000oz at $22.00 Silver

Silver Bar: $110,000.00

Spread 2.0%: $2,200.00

Commissions 2.0% $2,200.00

Total Spread & Commission: $4,400.00

Example using Futures 5000oz at $22.00 Silver

Silver Bar: $110,000.00

Spread .01-.03: $50-$150

Commissions: $50-$100

Total Spread & Commission: $100-$250

Note: Possible costs savings using Futures vs. Spot, 5000oz equals $4,150! Get the idea? Why I call the Futures market the

“Wholesale” market!

In these very simple examples, you will save tremendous amounts in commissions and spread charges using silver futures. This

does not include any storage, finance, insurance or delivery charges, which may be charged depending on how the trading is

structured. The spread and commission will typically be even higher on rare numismatic coins. If you hear the word “rare”, I

would personally run unless you know exactly what you are doing. Commissions can be as high as 8%-10%, with even larger

spreads for “Rare” coins. I don’t care how great of a deal the “Account Executive” tries to sell you. Simply run. These guys have

been giving our industry a bad name for a very long time.



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Physical Delivery

Both futures and silver ETFs offer physical delivery for silver. However, varying quantities and delivery procedures are much

more complex to deal with, and you have to deal with the trustee iShare SLV ETF and its many locations. Conversely, silver

futures are pretty simple. After contract expiration, you’ll pay off any balance, and then arrange for courier delivery or have

it mailed, via registered USPS. I’ve personally handled this for many of my clients, and it’s not as complicated as many portray.

Tax Implication

Futures may present certain tax advantages as well. Note that I am by no means offering tax advice, but I do know the differ-

ence between long term capital gains and short term capital gains, and futures are treated differently than ETFs & Spot. I’d

recommend consulting your tax attorney for specific advice.



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DISCLAIMER

THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE “RISK DISCLOSURE” WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICES.


Beginners Guide Trading Silver Futures

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