Hedging Strategies

[Zeuk]

Hi

Curious if anyone here hedges their PM investments through paper trading, especially Silver?

Tnx

[minionsofgold]

I also wonder if people are trading commodities (CFDs) or etf on PM.. 

@Zeuk i heard people are buying mining stocks or etf but not sure if we can buy them stocks in UK 

[Zeuk]

45 minutes ago, minionsofgold said:

I also wonder if people are trading commodities (CFDs) or etf on PM.. 

@Zeuk i heard people are buying mining stocks or etf but not sure if we can buy them stocks in UK 

I own some mining stock in the supply chain of batteries and a fund that's more general, there are lots of funds and etfs available in the UK across the sector

I was curious about short-selling silver to hedge some of its volatility 

[Wileyfox]

Kind of but in the opposite way. I am bullish on the silver price so I want to be as long as possible.

I have found it easier to realise higher premiums on my physical when the spot price is low. Conversely I have found it easier to buy physical at lower premiums when the spot price is high. Having a vaulted or paper silver product allows one to capture this difference.

When I was selling physical silver at lower spot prices I used to put the proceeds straight back into vaulted silver on BullionVault so as to hedge long i.e. to keep/increase my silver exposure. I could then use limit orders to take partial profits, switch between metal types at suitable ratios, or rebuy physical when premiums were lower etc. Proceeds/profits also went towards undervalued junior silver miners in my ISA.

If I wanted to hedge I would probably buy puts, say using spreadbetting on IG, at least then my downside risk would be capped. Given my outlook on the silver price I would find it stressful having a short position and would inevitably sleep less well and/or end up making poor decisions. Would be interested to hear what others would do though, as will need a good plan for when silver hits $50!

[Zeuk]

35 minutes ago, Wileyfox said:

Kind of but in the opposite way. I am bullish on the silver price so I want to be as long as possible.

I have found it easier to realise higher premiums on my physical when the spot price is low. Conversely I have found it easier to buy physical at lower premiums when the spot price is high. Having a vaulted or paper silver product allows one to capture this difference.

When I was selling physical silver at lower spot prices I used to put the proceeds straight back into vaulted silver on BullionVault so as to hedge long i.e. to keep/increase my silver exposure. I could then use limit orders to take partial profits, switch between metal types at suitable ratios, or rebuy physical when premiums were lower etc. Proceeds/profits also went towards undervalued junior silver miners in my ISA.

If I wanted to hedge I would probably buy puts, say using spreadbetting on IG, at least then my downside risk would be capped. Given my outlook on the silver price I would find it stressful having a short position and would inevitably sleep less well and/or end up making poor decisions. Would be interested to hear what others would do though, as will need a good plan for when silver hits $50!

Super interesting thanks, agree with what you say regarding premiums and price action, that's a cool approach to dealing with it.

The hedging approach I was considering was indeed with spreadbetting, I'm quite happy holding a reasonable chunk of long-term weight, but it would be nice to mitigate against any big swings and possibly make some short-term realised gains against unrealised losses that would then enable stocking up at cheaper levels (assuming we get swings).  It's been years since I've had a spreadbetting account so no idea whats available there at the moment but I was essentially thinking I could lay a bet that would compensate a % of overall stack size and trail with tight stops.  May end up just wasting money with commission and spread but could be useful.

I should probably paper trade it first to try and figure things out, but might open up an account and experiment with small sizes to keep it interesting. 

[Zeuk]

Based on what you said re premiums it would be a bit of admin effort but the happy path would be, price swings down and open up a lay bet, that runs and makes a bit of cash and mitigates physical holding losses, then re-invest either into physical at cheaper prices or move to vaulted silver until price rise accommodates premium efficiency. 

The path ill probably get is open lay and stop loss gets hit, lose money, price drops the next day, i panic and sell physical, price goes to the moon.

(ps probably getting my language muddled on stop/limits etc. ... its been a while)

[HonestMoneyGoldSilver]

If you are bullish on silver and own paper and physical with the ability to transfer efficiently/profitably between the two, you may be interested in running a wheel strategy. You don't need physical at all to run this strategy but if you're making arbitrage between spot, premiums, paper and physical, then all the better:

The Wheel Strategy Blog - Options Trading Made Simple

[Wileyfox]

Yes I'm not sure the best product out there but IG is one I have used before and they have a demo account where you can try things out.

A couple of points from memory..

• There's going to be costs - the spread plus for a spot contract there's an overnight funding rate (for a short they should be paying you interest but I'm pretty sure they'll still charge you a small amount) you can avoid the overnight funding rate by opting for the futures contract but here the spread will be higher i.e. the funding costs are put into the spread.
   
• The contract will be priced in $/oz with a minimum of £1 a cent. This works out at an exposure of 100*GBP/USD oz ~125oz. As well as going short silver you'll also be going long USD so if you're base currency is GBP then there's also a forex risk to consider.
  For example, lets say £1 is $1.25 and you go short £1/pt at $25/oz (£20/oz). Next the Fed starts lowering interest rates and the pound and silver both go on a rally with £1 going to $1.50 and silver going to $30/oz (so silver stays at £20/oz). Your short is now £500 underwater and silver is still no cheaper in £ terms.

[CANV]

If you are going to hedge or punt stuff IG is an excellent platform and it’s tax free ..

but I’d recommend only using it for hedging.  I pretty sure that 90 per cent of ‘punters’ lose out in the end due to the ability to leverage 

Edited April 23, 2023 by CANV

[Spyder]

Spreadbetting and Cfds  Most will lose in the long run. Not because they are wrong, but more because they do not have the pot to leave the position open when things go against them. They will get closed out the worse position and then watch as the position starts to go their way. Also one ends up with many sleepless nights.

I prefer Bullionvault where you own what you buy. If price goes down, you still own the amount of metal. Over the last couple of months had sell orders above £650 and buys at £550-£575. Same money and have ended up with a few extra KG of silver.

Edited April 23, 2023 by Spyder