Silver futures trading allows traders to make significant profits from short-term changes in the spot price of silver. Futures traders can profit from an increase in the price of silver with a buy-to-open or bet on a decrease with a sell-to-open order. The cost, or margin deposit, for a trade in either direction is the same.
Standard Silver Contracts
The standard silver futures contract is for 5,000 troy ounces of silver. The contract product symbol is SI. In December 2010, silver was about $29 per ounce, so one futures contract was worth $145,000. Individual traders often prefer the smaller e-mini futures contracts. The e-mini silver -- symbol 6Q -- has a contract size of 1,000 troy ounces.
Margin Requirements
To open a silver futures trade, the trader must put up a margin deposit in the amount dictated by the futures exchange. The margin deposit is just a fraction of the value of the silver contract and allows the trader to control a large amount of silver with a relatively small amount of capital. In December 2010, the initial margin deposit on the standard silver futures contract was $10,463. The e-mini silver contract required a deposit of $2,093.
Ticks and Values
Futures contracts have a minimum price change called a tick. On the standard futures contract, the tick value is 1/10 of a cent per ounce. For the trader, each tick change in the price of silver is worth $5.00. The e-mini silver contract also has a minimum price change of 1/10 of a cent. An e-mini silver tick is worth $1.00. Small changes in the price of silver can add up to significant value change in a silver futures contract. A 20-cent price change in silver is worth $1,000 on the standard silver contract and $200 on a e-mini contract.
Profits and Losses
At the end of each trading day, the profits or losses of a silver futures trader's open positions are determined and compared to the margin maintenance requirement. For the standard contract, the maintenance margin is $7,750 and for the e-mini contract it is $1,550. If any losses push the trader's equity below these levels, a margin call will go to the trader to put more cash into his trading account or the position will be closed by the broker.
