Traditional silver investment consists of buying physical silver bars or coins. But investors who want to benefit from a rise in the price of silver without the hassles involved in owning the physical metal can also opt to invest in silver mining stocks and exchange traded funds (ETFs) that specialize in holding silver mining stocks.
If you’ve considered investing in silver but prefer not to own the physical metal, keep reading to find out how to buy silver stock in your brokerage account. Learn how you can buy silver stock now.
One kilogram bars of silver. Source: Capital.com.
How to Buy Silver Stock
- Compare the brokers that sell silver stock.
Buying the stock of silver miners can be accomplished via just about any reputable stockbroker, although some brokers might suit your needs better than others. Since more than half of all mining companies are listed on Canadian exchanges, choosing a broker that provides access to Canadian stocks gives you the most silver stock investment options.
The exchange with the most listings of silver mining companies is the Toronto Stock Exchange (TSE) that incorporates the TSX Venture Exchange (TSXV). The TSXV specializes in emerging companies, so newer Canadian silver miners that have recently gone public are generally listed on this exchange.
Many of the larger Canadian mining companies also dually list their stock on the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX) or the Over the Counter market (OTC). You can execute trades in these stocks through a regular stock broker that handles US stocks.
If you decide to invest in smaller mining companies listed exclusively on Canadian exchanges, then you would probably be better off with an international broker or a Canadian broker that can execute trades on the TSX.
You may also be able to purchase a larger quantity of stock directly on the TSX, although you will incur exchange rate risk if you do not live in Canada since TSX listed stocks are priced in Canadian dollars.
- Open an account.
Before you can begin buying silver stocks, you’ll have to open a brokerage account with a reputable stock broker. Opening an account with a broker is easy, and some brokers will even let you open an account without a deposit.
If you want to buy stocks, then you’ll need to fund your account with enough money to cover your intended purchase. You can calculate the amount of money you’ll need by multiplying the price of the stock by how many shares you wish to buy. You can also divide your intended investment amount by a stock’s share price to get the number of shares you can afford.
You may also be able to open a margin account and leverage the money in the account to control even more silver stock with the same amount of money. Be aware that if the stock you buy drops by a significant amount, you will generally get a “margin call” from your broker that obligates you to either liquidate the position or deposit additional funds.
- Select the silver stocks of your interest.
After you’ve opened your stock brokerage account, you can begin researching the silver stocks you would be interested in buying. Silver mining stocks should be evaluated much like other stocks, with the added component of their correlation to the silver market.
Ideally, you would look for companies with a strong financial statement, positive cash flow and a healthy return on assets and equity. Also, a mining company with a 2:1 ratio of assets to liabilities, a good forecast on production and proven reserves would seem a prudent investment.
The mining companies you select should also not be subject to environmental litigation, labor strikes or political uncertainty that could threaten their silver production. If you do your research carefully, you should come up with some decent silver mining stocks to add to your portfolio.
- Pay for your silver stocks.
After researching and selecting the silver stocks you wish to buy, you are now ready to place an order with your broker to buy the stocks you’ve singled out. If you hold a position in a margin account, you will need to make an initial margin deposit.
You are then required by law to maintain at least 25% of the total value of your stock in the margin account at all times, many stockbrokers require a higher maintenance margin of 30% to 40% of the value of your stock. This is called the maintenance requirement.
For example, if you bought your stocks in a margin account with a stockbroker that permits 2:1 leverage, then you initially have to pay 50% of the price of the stock and borrow the other 50% from your broker. If the market declines, then you may receive a margin call requiring you to add maintenance margin funds to your account or liquidate the position.
- Trade your silver stocks (optional).
Trading your silver stock is entirely optional if you plan on investing for the long term, although it could make sense if you want to maximize returns by taking additional risk. Trading costs are minimal since many major brokerages now offer commission-free stock trades, so your success mainly results from whether you choose winning or losing trades.
Remember that if you buy and sell the same security in a margin account on the same day, you have just made a day trade. If you make four or more day trades in a margin account within five days, then you would be considered a pattern day trader and might have to meet certain requirements to continue to operate in that way.
For example, the U.S. Securities and Exchange Commission (SEC) has strict rules for pattern day traders that include maintaining a minimum balance of $25,000 in the account at all times. If your account falls below the $25,000 requirement, you will be issued a day trading margin call and not be permitted to trade until you have funded your account to the $25,000 minimum.
Pros and Cons of Silver Stocks
Silver bullion and silver mining stocks are two very different investments that may not track each other perfectly. Investing in mining stocks lets you participate in the growth of the company. You can also use leverage to achieve a better return compared to bullion if your market view is correct.
Holding physical silver also poses certain risks, such as theft if the silver is stored in an unsecure location. Secure storage of bullion also costs money. Owning silver stocks involves none of these risks or expenses, and you may even receive dividend income.
Another advantage to silver stocks is that they typically outperform silver in market rallies, although they might also decline by a greater percentage during a downturn. Stocks also tend to be more liquid, so this means you can more easily liquidate your position than if you were holding physical silver bars you wanted to sell.
One downside involved in owning stock versus physical silver would be in case of a dramatic geo-political or economic upheaval where physical assets would be more valuable than paper saying you own part of a mining company. Another risk of silver stocks can materialize if you selected a mining company that later became embroiled in environmental litigation or went bankrupt.
Tax and Commissions
Many U.S. stock brokerage firms now offer commission free trading on listed stocks, so those who use such a stockbroker probably won’t have to pay commission on trades. If you plan on trading internationally, then you may be subject to trading commissions.
Regarding the taxation of silver stocks, if you hold the stocks long term or more than one year, you may be subject to the standard 20% maximum federal rate, depending on your tax bracket.
Short-term gains from holding a stock less than a year get taxed at the same rate as other types of income, which also depends on your tax bracket. See an accountant for tax advice specific to your situation.
Best Online Brokers to Buy Silver Stocks
The best online broker for silver stocks depends on your needs. Our picks for the best brokers to buy silver stocks appear below.
Invest in Silver Today
Investing in any stock carries potential risk, although the percentage gains on silver stocks often exceed those seen on physical silver during a rally. When the price of silver declines, the resulting percentage selloff in silver stocks typically exceeds that seen in physical silver, which can let you buy silver stocks at bargain prices.
Not all silver mining stocks perform equally or have the same risk, since a junior silver stock can be more risky than an established miner. This arises due to the risks associated with exploration and development that can put pressure on a company’s stock price. These risks are typically reduced with larger and more established mining companies.
Frequently Asked Questions
Q. Is it better to buy silver or silver stock?
It often makes more sense to buy silver stock than the physical metal for a variety of reasons.
Q. Is silver stock a good investment?
Buying stocks in silver miners is often an excellent way to profit from a long term rally in silver.