Silver Futures Strategy (Backtest And Example)

Last Updated on January 3, 2023

Silver futures are the most actively traded precious metal futures contract after gold. Silver has been used as currency and jewelry for ages due to its beauty and versatility. Today, due to its high conductivity and other properties, silver is also used in batteries, dentistry, glass coatings, LED chips, medicine, nuclear reactors, photography, photovoltaic (solar) energy, RFID chips (for tracking parcels or shipments worldwide), semiconductors, touch screens, water purification, and so on. This is why silver futures are one of the most active contracts, but to trade it, you will need a silver futures strategy.

A silver futures strategy refers to methods and strategies for trading silver futures contracts profitably, and this would include some technical and fundamental analyses of the silver futures market. Silver futures are a tradable, legally binding agreement to supply or buy a specified amount of silver on a future date at a stipulated price.

The contract trades on the CME Globex and ICE Futures US platforms and is settled by physical delivery of a specified quantity and grade of silver. With a silver futures strategy, you can speculate on silver price movements, diversify your portfolio, or hedge your investments.

In this post, we answer some questions about the silver futures strategy. After explaining the basics, we show you an example of a backtested silver trading strategy.

Table of contents:

What are Silver futures?

Silver futures are futures contracts with silver bullion as the underlying asset. Such contracts represent a legally binding, but tradable, agreement to receive or deliver a specified quantity of silver at a predetermined price on a future date. The product is largely traded on the CME Globex and ICE Futures US platforms. It is settled through the actual delivery of the stipulated quantity and quality of silver.

After gold, silver is the most commonly traded contract on commodities exchanges around the world, with a total market value of more than $1.33 trillion (spot and futures).

Silver contracts are standardized in terms of quality, quantity, and delivery date. However, the contract can be traded without involving the delivery procedure.

What is a Silver futures strategy?

A silver futures strategy refers to the methods and techniques that can be used to profitably trade the silver contract. This involves the use of technical and fundamental analyses for timing the silver futures market, as well as position sizing and risk management approaches.

To be successful in the silver futures market, you must have a solid trading technique that provides precise entry and exit signals. Spread trading and exchange arbitrage may also be part of your plan, but this is very difficult to make money on.

In order to make money on a silver strategy you need to be sure you have a positive expectancy. To better understand if you have a positive expectancy, you need to backtest:

Let’s go on to backtest a silver futures strategy:

Silver futures strategy backtest

Let’s look at one silver futures strategy. However, we believe silver, together with most commodities, is very hard to trade. Most strategies don’t last very long and you must expect a low “survival” rate for the strategies that survive any incubation period. (If you are new to trading we believe you are better off focusing on the stock market.)

Silver futures strategy backtest

Let’s look at a silver day trading strategy. The strategy is pretty good, but yet it has only two entry variables based on seasonalities, and the exit variable is a simple time exit after a few hours. We developed this strategy back in June 2020 and thus it has two years out of sample data.

We won’t reveal the trading rules and settings (the strategy is planned revealed for our paying monthly subscribers sometime in the future.)

The equity curve looks like this (2005 to December 2020):

Silver futures strategy backtest

The trading statistics and historical performance metrics show the following facts:

  • 701 trades
  • 0.18% per trade (the backtest is an equity test – not a futures test)
  • The win rate is 64%
  • Profit Factor is 2.3
  • Max drawdown is a very low 8%
  • The worst year was 2009 with only 1.5% returns

How has the strategy performed in our out-of-sample data? This is the equity curve from December 2020 until December 2022:

Silver futures strategy example

The 97 trades returned on average 0.26% per trade and the win rate stayed the same at 64%. The strategy seems pretty solid (if you ask us).

What is the seasonality of Silver futures?

Seasonality in the price of silver refers to the tendency of silver prices to move in a relatively predictable pattern during specific periods of the year. Periods in this sense might refer to calendar months or seasons such as winter, spring, summer, and fall.

Silver contracts, like gold, have been found to perform quite well in the winter months. Performance during spring and fall is mixed. It does poorly during the summer, as you can see in the chart below:

Silver futures strategy
Source: Equity Clock

What moves the Silver market — What affects the Silver market the most?

Some of the factors affecting silver price are similar to those affecting the price of gold, but the common ones are:

  • Changes in interest rates: When interest rates are low, silver prices tend to rise; when interest rates are high, silver prices tend to fall.
  • Inflation: Rising inflation raises silver prices while falling inflation lowers silver prices.
  • Uncertainty: Any event that reduces confidence in the market, such as wars, political tensions, and terror attacks will drive the price of silver high.
  • Demand and supply imbalances: Like most commodities, the price of silver is determined by speculation as well as supply and demand. Because of the smaller market, reduced market liquidity, and demand variations between industrial and store-of-value uses, the price of silver is notoriously volatile when compared to that of gold.

How are Silver futures traded?

Silver futures contracts are traded on a variety of commodity futures exchanges worldwide, including CME Group’s Globex platform and ICE Futures US.

The silver contract (SI) can be traded on CME’s Globex electronic platform from 6:00 p.m. to 5:00 p.m. New York Time the next day, with a one-hour interruption after each day. There are monthly contracts specified for three months in a row, as well as any January, March, May, or September in the next 23 months and any July and December in the next 60 months.

Silver futures (with the trading symbol, ZI) trade on the ICE futures market from 8:00 PM to 6:00 PM the next day New York Time; however, it opens at 6.00 PM on Sunday. From 5:30 PM until 7:30 PM Monday through Thursday, there is a pre-Open market. The contract series is as follows: Every calendar month in the three months, beginning with the first futures month listed. In the 23 months beginning with the first specified futures month, every January, March, May, and September. In the 60 months starting with the first specified futures month, every July and December. New months are listed on the second business day after the expiring months’ last trading day.

One contract unit equals 5,000 troy ounces of silver, and the price is quoted in US dollars and cents per troy ounce. Settlement is by physical delivery, and trading closes at 12:25 p.m. CT on the third last working day of the contract month.

How do you start trading Silver futures?

You need a futures broker that will give you access to the exchanges where silver futures contracts are traded to trade the contract. Registering with a futures broker, such as TradeStation, and funding your account are the initial steps in getting started with trading.

Alternately, if all you want to do is speculate on price fluctuations, you can trade silver futures contracts CFDs using an online CFD broker like IG and Avatrade. You can trade price changes with CFDs without worrying about contract expiration or asset delivery.

What is Silver trading at?

As of December 12, 2022, silver is trading at $23.64. You can view the live chart here on TradingView. You can also see the current market price on CME’s Globex platform.

The market price varies with time and the price you will see will be different from the one written in this article at the time of writing. To get the real-time price of silver, click on any of the two links provided.

What’s Silver futures hour?

Silver futures (with the trading symbol, ZI) trade on the ICE futures market from 8:00 PM to 6:00 PM New York Time every trading day, however, it opens at 6.00 PM on Sunday. From 5:30 PM on Sunday until 7:30 PM Monday through Thursday.

The silver contract (SI) trades on CME’s Globex electronic platform from 6:00 p.m. to 5:00 p.m. New York Time the following day, with a one-hour break at the end of each day.

Where can I find trading charts?

You can find free trading charts from several platforms, such as TradingView and Multicharts. Although you might be required to subscribe to a pro version if you want a more advanced charting technique, the free version will do just fine.

Alternatively, you can get access to the chart of silver on Marketwatch, Yahoo Finance, and Barcharts.

What are the trading symbols for Silver futures?

The trading symbol and product codes of the silver futures contract on the CME platform are as follows:

  • CME Globex: SI
  • CME ClearPort: SI
  • Clearing: SI
  • TAS: SIT

The trading symbol of the silver futures that trade on ICE US is ZI.

What is the specification for the Silver futures contract?

One contract unit of silver futures is equivalent to 5000 troy ounces on both CME and ICE exchanges. The price quotation is in US dollars and cents per ounce. The minimum fluctuation is 0.005 per troy ounce which is equivalent to a tick size of $25.00 per contract.

There are monthly contracts specified for three months in a row, as well as any January, March, May, or September in the next 23 months and any July and December in the next 60 months. Settlement is by physical delivery, and trading closes at 12:25 p.m. CT on the third last working day of the contract month.

Why should you start trading Silver futures?

Here are some of the reasons:

  • Silver serves as a safe haven: During periods of economic and equity market crises, investors seek assets that can weather market storms. These investments are referred to as “safe havens” not just because they can endure volatile markets but also because they occasionally even increase in value as the value of other investments plummets. One of these assets is silver.
  • The demand for silver is rising: Silver is increasingly being employed in industry, mostly for its chemical qualities. As a result, demand for it is increasing, whereas fresh reserves of this precious metal are rarely discovered making it a scarce commodity. Scarcity often leads to increasing prices.
  • Silver is a good hedge against inflation: During periods of rising inflation, currencies lose value, but the value of commodities like silver rise. Investing in silver is thus one option for protecting your cash from inflation. This is why many investors use silver and other precious metals to protect their wealth from inflation.

What is the contract size?

One contract unit of silver futures is equivalent to 5000 troy ounces on both CME and ICE exchanges. Given that the price of a troy ounce of silver as of writing is $23.64, the total USD worth of a full contract of silver would be 5000 x $23.64 = $118,200.

What is the tick size?

The minimum tick size is $5 per contract for ZI on ICE Futures US, and $25 per contract for SI on the CME Globex platform.

What is the minimum price fluctuation for Silver futures?

The minimum fluctuation is 0.005 per troy ounce on the CME Globex platform and 0.001 per troy ounce on ICE.

Are there any ETFs?

Yes, there are many ETFs that monitor the performance of the silver market on US exchanges. Here are a few examples:

  1. iShares Silver Trust (SLV)
  2. abrdn Physical Silver Shares ETF (SIVR)
  3. ProShares Ultra Silver (AGQ)
  4. Invesco DB Silver Fund (DBS)

What factors affect Silver prices?

Some of the factors affecting silver prices include:

  • Imbalances in the commodity’s demand and supply.
  • Uncertainties caused by political events and natural disasters.
  • Inflation rate changes.
  • Interest rate and monetary policy changes.

What is the all-time high for Silver futures?

Based on the TradingView chart for silver futures (SI), the all-time high for the silver market is $49.820. It reached this level in April 2011.

What are the biggest risks in trading Silver futures?

The largest risk in trading any sort of futures, such as silver futures, is adverse price movement. Due to the use of leverage, losses can be extremely large because they are calculated using the actual value of the contract size traded and deducted from the small margin deposited. For example, if you trade with a 50x leverage, a 1% negative price movement would result in a 50% loss in your account, and a 2% negative price movement would entirely wipe out your account.

What is the settlement method?

Physical delivery.

What is the settlement procedure?

CME Group staff settle COMEX silver futures (SI) based on trading activity on CME Globex during the settlement period. The settlement period for the Active Month is 13:24:00 to 13:25:00 ET and 13:10:00 to 13:25:00 ET for calendar spreads.

The final settlement of the silver contract is by physical delivery of the stated amount and quality of silver, which is supervised by the exchange.

What is the block minimum for Silver futures?

25 contracts

What is the difference between Silver futures and the CFD for Silver?

Silver futures are traded on regulated futures markets, whereas silver CFDs are simply contracts between a trader and an online CFD broker to exchange the price difference in silver between the time a trade is opened and the time it is closed.  

Which forex pair is the same as Silver futures

Silver CFD

What are some important dates for this market?

Some of the important dates in the silver market include:

  • July 5, 1933: Silver futures started trading on COMEX
  • October 4, 1984: Options on silver futures were launched
  • April 2011: Silver made its current all-time high of $49.820

What is the highest Silver has ever been — its all-time high?

Based on the TradingView chart for silver futures (SI), the highest price the silver market has ever traded was $49.820, which happened in April 2011.

What is the lowest Silver has ever been — its all-time low?

Based on the TradingView chart for silver futures (SI), the lowest price the silver market has ever traded was $1.290, which happened in November 1971.

List of trading strategies

You can get the code for the 123 reversal pattern strategy together with plenty of other different strategies.

We have written over 800 articles on this blog since we started in 2012. Many articles contain specific trading rules that can be backtested for profitability and performance metrics.

The trading rules are compiled into a package where you can purchase all of them (recommended) or just a few of your choice. We have hundreds of trading ideas in the compilation.

The strategies are taken from our list of best trading strategies. The strategies are an excellent resource to help you get some trading ideas.

The strategies also come with logic in plain English (plain English is for Python traders).

For a list of the strategies we have made please click on the green banner:

These strategies must not be misunderstood for the premium strategies that we charge a fee for:

FAQ silver futures strategy

We end the article with a few frequently asked questions about any silver futures strategy:

How to trade in silver futures?

We don’t recommend silver CFDs. Instead, we believe you are better off setting up a proper broker account and trading silver futures. If you have a small account, you can trade the micro contract.

What is the best time to trade silver?

Every asset has certain times that are better buying opportunities than other periods. So is with silver as well. The day trading strategy backtest we did above is an example of such a strategy. To find out the best periods to buy silver you need to backtest and use trial and error.

How to trade silver successfully?

To make money trading you need to make sure you have a positive expectancy. The best way to make sure you have a positive expectancy is to backtest. No risk management or psychology will ever recoup a strategy that doesn’t have a positive edge.

At what time is silver most volatile?

Volatility varies over time, but most assets have their own particulars – and so does silver. We have not looked at it in particular, though.

Is silver a good inflation hedge?

In the short term – no. Over very long periods of time – yes, silver has worked pretty well as an inflation hedge.

What strategies can I use to trade silver futures?

You can use trend-following strategies, mean-reversion strategies, scalping strategies, and spread trading strategies. Additionally, traders may employ fundamental analysis, technical analysis, and/or quantitative analysis to form their trading decisions. We recommend a quantitative approach.

What are the risks associated with trading silver futures?

Our experience is that silver, like most commodities, is tricky to trade.

Trading silver futures carries with it the risk of loss due to changes in market prices and/or unfavorable news or events.

Additionally, the leverage available in futures contracts can magnify losses, so it is important for traders to understand the full range of risks associated with futures trading before entering into any position.

What are some tips for successful silver futures trading?

You need a well-defined trading plan with a positive expectancy, and the ability to execute trades with discipline.

Stop-loss orders are of less significance. Also, you don’t need to update yourself on the most recent news. News is mostly just noise that is impossible to predict. You can’t control the news!

Conclusion

You can use the silver futures strategy to diversify your investment portfolio into the precious metal market, hedge your exposure in the market, or simply speculate on silver prices.

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