The London Bullion Market Association (LBMA) announced last week that it has selected the mechanism provided by CME Group and Thomson Reuters to set the London Silver Price benchmark.
Monday, July 14, 2014
LBMA described the new mechanism as an auction-based, fully auditable solution on an electronic platform that allows trading with an expanded array of trading participants.
"A particular thank you to ISDA, and the Silver Institute for all their constructive support of the LBMA during this consultation process," stated Ruth Crowell, the chief executive of the LBMA in the group's press release. "We will work in partnership with the CME Group, Thomson Reuters and price participants to implement the solution in time for testing in early August and go live on the 15th August."
The fix is in
It's important to note that the silver fix in this case refers to the platform on which mining companies, along with their banking affiliates, determine how much metal they want to buy or sell based on supply and demand. Gold, silver, platinum and other precious metals all operate on their own fixing systems.
The change in system was partially driven by the retreat of other entities from the fixing process, particularly Deutsche Bank, Bloomberg reported. As the German bank shrunk its commodities section, it said that it would stop participating on August 14. The new system goes live on August 15.
Silver's future: bright or tarnished?
Fundamentally, the factors that drive silver's price will remain largely the same: Fear of inflation, a hedge against overheating equities or slumping bond markets, and the metal's status as a relatively 'hard' asset class.
The new process may clear up some of the suspicions that have clouded silver's reputation in recent years, including allegations of price manipulation and rigging during the old, centuries-old process. Potentially, this could reduce volatility in silver markets. On the other hand, an new electronic platform might speed up the rate of trading, leading to more jittery trends.
Binary silver options
NADEX binary options in silver are based on the silver futures market - specifically the COMEX/NYMEX® Silver Futures contract. There are dozens of different way to trade the metal - directly on the exchange, through exchange-traded funds (ETFs) or through a slew of different derivatives.
The advantage of binary options in this highly volatile market is that they allow traders to take a position with a decent amount of upside potential without committing too much collateral. Highly-leveraged futures positions can be wiped out rapidly in fast-churning markets, while binary options, as always, retain a defined downside risk.
There's no way yet of knowing how the larger silver market will react to the new fixing mechanism, but binary options offer a way to profit off movements in either direction while capping downside exposure.
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