Beginners Guide Trading Silver Futures

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INDEPENDENT. OBJECTIVE. RELIABLE.
1
Futures Basics & Essentials:
The Beginners Guide to Trading Silver Futures
Futures Basics & Essentials:
The Beginners Guide to Trading Silver Futures
INDEPENDENT. OBJECTIVE. RELIABLE.
2
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 frm 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 diffcult concepts to learn and
understand, but stick with it and you will learn and appreciate the signifcant 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]
Futures Basics & Essentials:
The Beginners Guide to Trading Silver Futures
INDEPENDENT. OBJECTIVE. RELIABLE.
3
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 beneft 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 fnanced 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 signifcant cost
savings and fexibility of silver futures, which is especially apparent when compared to spot bullion dealers.
Regulated Marketplace – Silver futures are fnancial 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 signifcantly 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 feld 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.
Futures Basics & Essentials:
The Beginners Guide to Trading Silver Futures
INDEPENDENT. OBJECTIVE. RELIABLE.
4
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: $22.00
Mini Silver Contract: 1000oz
Total Value of a 1000oz at $22.00 X 1000 = $22,000.00
miNY Silver Contract: 2500oz
Total Value of a 2500oz at $22.00 X 2500 = $55,000.00
Full Size Silver Contract: 5000oz
Total Value of a 5000oz at $22.00 X 5000 = $110,000.00
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.
Futures Basics & Essentials:
The Beginners Guide to Trading Silver Futures
INDEPENDENT. OBJECTIVE. RELIABLE.
5
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
magnifes 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
Futures Basics & Essentials:
The Beginners Guide to Trading Silver Futures
INDEPENDENT. OBJECTIVE. RELIABLE.
6
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 frst 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
Specifcations
Silver delivered under this contract shall assay to a minimum of .999 fneness.
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_specifcations.html
Key Points
5000oz, $25.00 per tic, and trading hours.
Futures Basics & Essentials:
The Beginners Guide to Trading Silver Futures
INDEPENDENT. OBJECTIVE. RELIABLE.
7
miNY Size Contract (2,500oz)
Product Symbol QI
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 2,500 troy ounces
Price Quotation U.S. Cents per troy ounce
Minimum Fluctuation Outright transaction including EFT: $0.125 per troy ounce. $31.25 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 frst 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
Specifcations
Silver delivered under this contract shall assay to a minimum of .999 fneness.
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_specifcations.html
Key Points
2500oz, $31.25 per tic, and trading hours.
Futures Basics & Essentials:
The Beginners Guide to Trading Silver Futures
INDEPENDENT. OBJECTIVE. RELIABLE.
8
Mini Size Contract (1,000oz)
Product Symbol SIL
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 1,000 troy ounces
Price Quotation U.S. Cents per troy ounce
Minimum Fluctuation Outright transaction including EFT: $0.001 per troy ounce per tic $1.00.
Termination of Trading Trading terminates on the third to last business day of the delivery month.
Listed Contracts Current calendar month; the next two calendar months; any January, March, May,
July, September, and December falling within a 12-month period.
Settlement Type Physical
Delivery Period Delivery may take place on any business day beginning on the frst 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
Specifcations
Silver delivered under this contract shall assay to a minimum of .999 fneness.
Exchange Rule These contracts are listed with, and subject to, the rules and regulations of COMEX.
Source: http://www.cmegroup.com/trading/metals/1000-oz-silver-futures.html
Key Points
1000oz, $1.00 per tic, and trading hours.
The mini market, in my opinion, should be mastered by EVERY silver investor. It’s an extremely versatile market with a
terrifc cost structure.
Futures Basics & Essentials:
The Beginners Guide to Trading Silver Futures
INDEPENDENT. OBJECTIVE. RELIABLE.
9
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_product
http://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.
Futures Basics & Essentials:
The Beginners Guide to Trading Silver Futures
INDEPENDENT. OBJECTIVE. RELIABLE.
10
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.
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, fnance, 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.
Futures Basics & Essentials:
The Beginners Guide to Trading Silver Futures
INDEPENDENT. OBJECTIVE. RELIABLE.
11
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 specifc advice.
Futures Basics & Essentials:
The Beginners Guide to Trading Silver Futures
INDEPENDENT. OBJECTIVE. RELIABLE.
12
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.
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.

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