Trading silver (XAG/USD) and its volatility risk

Silver is often treated as a cheaper version of gold. As a trading proposition that is a dangerous
way to think — silver has a very different risk profile, and its
contract size is the commonest trap.

1. Contract size: check this first

At most brokers, one lot of silver is 5,000 ounces, against gold’s 100.

So a $0.01 move in silver is $50 per lot. With a typical daily range of $0.50–1.50,
a one-lot position swings $2,500–7,500 in a day.

Plenty of people open one lot of silver thinking “silver is cheaper than gold so it is safer”, then
watch the account lurch. Contract size differs between brokers — this is a number you must read in the
contract specification before your first trade.

2. Why silver swings harder than gold

• A much smaller market. The same flow produces a larger percentage move.
• Industrial demand is a large share — roughly half. Silver goes into electronics,
  solar panels and many industrial uses, which makes it sensitive to the economic cycle in a way gold is
  not.
• A dual nature — both a precious metal (haven) and an industrial one (cyclical).
  Those two roles sometimes pull the price in opposite directions.

The result: silver’s volatility is typically 1.5 to 2 times gold’s in percentage
terms.

3. The gold/silver ratio

This divides the gold price by the silver price,
giving how many ounces of silver buy one of gold. Many traders watch it as a relative gauge:

• A high ratio → silver is cheap relative to gold.
• A low ratio → silver is expensive relative to gold.

It is a long-run reference, not an entry signal. The ratio can sit at an “extreme” for months.

4. Costs

Silver spreads are usually 2–4 cents. On a 5,000-ounce contract that is $100–200 per
lot — very high in money terms. Swap is also
usually negative both ways, as with gold.

High cost plus high volatility makes silver a poor fit for frequent short-term trading.

5. Three practical rules

• Read the contract size in your own broker’s specification before the first trade.
  Do not assume.
• Size by formula, using that
  broker’s own value per price unit.
• Halve the size relative to gold for comparable risk.

6. Who should trade it

Someone already comfortable managing size on gold who wants a wider range. Not a beginner, and not
someone choosing it because the price per ounce is lower — that number has nothing to do with the risk
of the position.

This article is for information only and is not investment advice. Conditions and fee levels are published by the brokers and can change at any time — check with the broker you actually use. Leveraged forex and CFD trading carries a high level of risk and can cost you your entire deposit.