Silver Exchange Traded Funds (ETFs) enable silver investors to purchase shares in a trust that owns Silver. The value of the shares is based on the spot price of the silver, with costs of holding and managing the physical silver built in. An example of a popular silver ETF is the iShares Silver Trust (SLV).
You Don’t Own Physical Silver
The reality is that with ETFs you do not own any physical silver. You only own a share of the trust. You cannot trade your certificates for the commodity itself. The ETF is not always backed by real physical silver as well; increasing the risk involved. It is important to read the terms and conditions in the transactions you make.
As with all investments it is important to fully understand the asset class you are purchasing. The iShares Siver Trust are not subject to the same regulation as normal Mutual Funds. They are, however, a way to gain access to the spot price of silver in a trade efficient way.
Advantages of ETFs
The main advantage of Silver ETFs is that an investor can get into silver with lower transaction costs than if purchasing the physical silver stock. Additionally, the silver is not delivered and it doesn’t need to be stored. It is a hassle free mode of silver investment, and provides a cheaper method of purchasing as well.
Disadvantages of ETFs
On the flip side you are not actually buying silver with ETFs, but rather a fraction of a trust. If there is a financial crisis, you are likely left with just a piece of paper. If you are fearful of a crisis then this is not for you, as in a true SHTF situation, ETFs would be literally worthless.
Best for Short Term Trading
Silver EFTs are probably not best for those looking for a long term silver investment. They are somewhat risky and do not hedge other investments as well as physically holding silver or gold.
However, the low transaction costs, convenience, and speed of trading mean they provide a great way to trade silver in the short term. One can get in and get out with profits quickly. As a result these are a preferred option chosen by silver traders as a vehicle to profit from their knowledge of the silver market and potential short term movements.
With silver the fluctuations in price are regular and significant in the current economic climate. Increasingly, the trading community is looking for a way to trade safe haven commodities efficiently. It is now even possible for retail investors to trade silver through one of the many online trading platforms (Binary Options, ETFs, Etoru). All it takes is a few hundred dollars funded into an online trading account.
Getting in and Getting Out
Finding an ETF to trade is only the start of the journey. Making the right decisions of when to get out and take profits is another part of the picture. Profitable traders are those that know when to get in and out and make maximum returns on an on-going basis. If you don’t have the discipline to make some pretty tough decisions then ETFs may well not be for you.