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What is the silver furtures market?

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Quick Answer

A silver futures market is a centralized marketplace where buyers and sellers can trade legally binding agreements in the form of precious metal futures contracts. These contracts determine various factors regarding the delivery of silver at a preset price in the future.

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Full Answer

Price is the only variable factor in a silver futures contract, while the time and place of delivery, in addition to quantity and quality, are standardized factors. A silver futures market allows hedgers to use silver futures contracts to avoid risks associated with highly variable prices when planning to purchase or sell silver in the future. On the other hand, the trading of futures contracts allows speculators to participate in the market without the requirement of physical backing. Speculators, such as commodity trading advisers, hedge funds and investors, look to profit from a silver futures market by assuming market risk instead of expressing interest in taking delivery.

In a silver futures market, the price of silver is determined in dollars and cents per ounce. The smallest increment that’s allowed in such a market is $0.001 per ounce. Exchanges set the position limits for silver, while the delivery requirements mandate the use of vaults in the New York area. As of 2015, based on the volume of trading and open interests, the most active months with regard to delivery of silver are March, May, July, September and December.

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