Silver

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Gold, as you have previously been acquainted with, is not the only precious metal that’s widely traded in the commodity market. There’s also silver - a very close relative of our favourite yellow metal. And that is going to be our primary focus in this chapter. As a matter of fact, both gold and silver enjoy a very close, positive correlation with each other.

Okay, so without further ado, let’s get into the world of silver and take a look at the various types of silver contracts that you can trade in.

Silver: An overview

A soft and malleable metal that’s greyish white in colour, silver, has been in use for more than 5,000 years. Similar to gold, silver is also a much revered metal in India. The consumption of silver in the country is primarily via jewellery, utensils, and ornaments, although many people also buy silver bars as an investment.

With so much demand for this precious metal, it's no wonder that the commodities market allows you to trade in silver in both the cash and derivative segments. Dealing in the cash segment of silver is similar to trading in direct equity and gold. So, we’ll be focusing on the derivative segment, which is far more exciting.

The different types of silver contracts

Remember from an earlier chapter like how gold has four different contracts to choose from? Similarly, silver also has multiple contracts - three to be precise. Here’s a quick look at them.

Silver

Silver is the regular derivative contract of the silver commodity. As you would have already guessed by now, this is the most widely traded contract among the three. Let’s take a quick look at some of the key contract specifications.

Particulars

Contract specifications

Lot size 

30 kilograms

Price quote

INR value per 1 kilogram

(includes taxes, duties, and other levies)

(excludes GST, any other additional tax, cess, octroi, or surcharge)  

Tick size

1 rupee

Contract expiry date

5th day of the contract expiry month.

If the 5th day of the contract expiry month falls on a holiday, the previous trading day would be the contract expiry date. 

Contract availability

5 contracts

For instance, if you check the list of available contracts on the MCX website in the month of February 2021, you’re likely to find the following 5 contracts.

  • 05MAR2021 
  • 05MAY2021
  • 05JUL2021
  • 03SEP2021
  • 03DEC2021

Maximum order size

600 kilograms

Delivery

Mandatory

Okay so, now that you’re aware of the contract specifications, let’s quickly take a look at the price at which the contract is trading in the MCX.

As you can see in the snapshot above, the silver commodity price as regards the silver contract is currently at Rs. 69,932. The quoted price is for 1 kilogram of silver. Now, as per the contract specifications that you saw in the above table, the minimum lot size for the contract is set at 30 kilograms. This puts the contract value at Rs. 20,97,960 (Rs. 69,932 x 30). The margin that you would have to put forth to buy 1 lot of the silver futures contract would come up to around Rs. 3,78,332.

Since the amount of margin that you would have to put forth tends to be high, retail investors usually stay away from trading in this derivative contract. Institutional investors, jewellery chains, and other large industries that use silver are the primary players that participate in trading the silver contract.

Silver Mini

The silver mini contract was introduced in a bid to encourage retail participation in the derivative contracts of silver. In contrast to the silver contract, the lot size of silver mini and the margin are both lower and more affordable. Let’s take a brief look at the contract specifications of silver mini.

Particulars

Contract specifications

Lot size 

5 kilograms 

Price quote

INR value per 1 kilogram


(includes taxes, duties, and other levies)


(excludes GST, any other additional tax, cess, octroi, or surcharge)  

Tick size

1 rupee

Contract expiry date

Last day of the contract expiry month. 


If the last day of the contract expiry month falls on a holiday, the previous trading day would be the contract expiry date. 

Contract availability

5 contracts  


For instance, if you check the list of available contracts on the MCX website in the month of February 2021, you’re likely to find the following 5 contracts.


  • 26FEB2021 
  • 30APR2021
  • 30JUN2021
  • 31AUG2021
  • 30NOV2021

Maximum order size

600 kilograms

Delivery

Mandatory

Here’s a snapshot from the MCX website showcasing the silver commodity price at which the contract is currently trading at.

As you can see here, the price at which silver mini is trading at is Rs. 69,570, which is the price per kilogram of silver. Now, this silver commodity price multiplied by the lot size (5 kilograms) gives you Rs. 3,47,850, which is the total contract value of silver mini. The margin that you would have to deposit to buy the futures contract would approximately come up to just Rs. 62,100, which is far more affordable to an average retail investor than the regular silver derivative contract. That said, there’s also another contract that demands even less of a margin - the silver micro.

Silver Micro

Created especially for small investors and traders with low investment capitals, silver micro futures are even more pocket-friendly. The margin demand and the lot size of the contract are extremely low, enabling almost any trader to participate in the short-term price movements. Here’s a quick look at the contract specifications of silver micro futures.

Particulars

Contract specifications

Lot size 

1 kilogram 

Price quote

INR value per 1 kilogram


(includes taxes, duties, and other levies)


(excludes GST, any other additional tax, cess, octroi, or surcharge)  

Tick size

1 rupee

Contract expiry date

Last day of the contract expiry month. 


If the last day of the contract expiry month falls on a holiday, the previous trading day would be the contract expiry date. 

Contract availability

4 contracts  


For instance, if you check the list of available contracts on the MCX website in the month of February 2021, you’re likely to find the following 4 contracts.


  • 26FEB2021
  • 30APR2021
  • 30JUN2021
  • 31AUG2021

Maximum order size

600 kilograms

Delivery

Mandatory

Now, let’s take a look at a snapshot from the MCX website that clearly shows the current trading price of the contract.

The current trading price of the silver micro contract is Rs. 68,572, which is per kilogram of silver. Now, the minimum lot size of the contract is also 1 kilogram, and so, the total contract value would also be Rs. 68,572. The margin for the contract would come up to just Rs. 12,341, which is extremely affordable and allows even small traders to purchase multiple lots.

Wrapping up

While silver micro futures and silver mini futures might look very attractive to you, always ensure that the contracts are liquid enough to trade before taking up a position. This is because the liquidity in the above mentioned counters usually tend to be lower than the regular silver derivative contract.

A quick recap

  • Silver also has multiple contracts - three to be precise.
  • Silver is the regular derivative contract of this metal. It is the most widely traded contract among the three. 
  • The silver mini contract was introduced in a bid to encourage retail participation in the derivative contracts of silver. 
  • In contrast to the silver contract, the lot size of silver mini and the margin are both lower and more affordable. 
  • Created especially for small investors and traders with low investment capitals, the silver micro is even more pocket-friendly. 
  • The margin demand and the lot size of the contract are extremely low, enabling almost any trader to participate in the short-term price movements.
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