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Silicon investment and trade
Silicon is a hard and brittle crystalline solid with a blue-grey metallic lustre; and it is a semiconductor, which means it has properties of both metals and insulators.
Silicon trading and investing is a popular way for traders and investors to make money.
Trading in silicon can be done in two ways: buying and holding the physical commodity or trading silicon derivative markets. We will dive deeper into these options in this article.
No matter which you choose, trading or investing in silicon can be a profitable strategy that allows investors to take advantage of market trends and benefit from the material’s properties.
The price of silicon depends on supply and demand, technological advances, market conditions, and production costs. Supply may be impacted by factors such as political instability, access to raw materials, weather, and natural disasters.
The graph on this page will show you historical context, current prices and the trend that this raw material has undergone.
What to know before trading in silicon
Background information
It is important to have background information on the raw material of your choice, before you trade in them, because it gives traders important information about the market. This can include fundamental and technical analysis, supply and demand dynamics, geopolitical events, and market sentiment.
Knowing these details helps traders make better informed decisions, spot potential risks, and identify areas where they may be able to gain an advantage. Having this information can also help improve the trader’s positioning and timing when entering into a trade.
Supply and demand
When trading or investing in raw materials, such as silicon, supply and demand is the fundamental mechanism used to determine stock prices. Stock prices rise when demand is greater than supply as investors are willing to pay more for the stock.
Alternatively, stock prices fall when supply is greater than demand as investors are not willing to pay as much for the stock. Typically, demand for stocks increases when the raw material’s underlying fundamentals are strong or when investors believe the stock price will appreciate in the future.
As a result, savvy stock traders are always aware of factors influencing demand and supply to make educated trading decisions.
Use of silicon
It is important to know what silicon is used for, to understand where the supply and demand come from.
Silicon is most commonly used in computer chips and other electronic components, such as transistors and solar panels, just like the raw material iridium.
It is also used in building materials, such as concrete, bricks, and ceramics, and for the production of silicone compounds, such as silicones, sealants, adhesives, and lubricants.
This raw material is also sometimes used in contact lenses and other medical applications.
Production of silicon
Approximately 8.5 million tons of silicon are produced globally each year.
Silicon is produced by heating silicon dioxide (SiO2) with carbon at high temperatures, to form pure silicon and carbon dioxide (CO2). Silicon dioxide can be obtained from natural sources such as quartz, diatomaceous earth, or sand, as well as through chemical synthesis.
The largest producers of silicon globally are China, the United States, Russia, Japan, South Korea, Germany, and Brazil.
Trading and investing in silicon
Physical silicon
Before you do your research, it is good to know that silicon is not typically traded as a physical commodity. It is a non-metallic element that is used to create various semiconductor components, including integrated circuits and processors, that are used inside all of the electronic devices, like phones and computers, that people use every day.
In other words: Silicon is most often sold as an isolated element or as an alloy composite and is not typically classified as a physical commodity.
Silicon is primarily traded in terms of its industrial use, mostly in the manufacturing and technology sectors. Many companies trade in silicon products, such as semiconductor chips, computer microprocessors, integrated circuits, and other electronic components, which can be found on various online marketplaces.
The amounts for these investments varies on the products you are buying, as well as the profitability of the investment. But the flexibility makes this a very easy entry-level investment for the silicon raw material market.
Derivative markets
The global market for silicon derivatives is growing rapidly. The increasing demand for semiconductor applications, and solar energy, has driven the demand for these derivatives.
Major end-user industries like aerospace and automotive technology, electronics and electrical equipment, and medical devices have also fuelled the demand for these materials.
Silicon derivatives have the characteristics to increase electrical conductivity, maximize battery performance and increase power in various products. This makes them extremely desirable for industrial and commercial applications.
As a result, major manufacturers like Samsung and Intel, among others, are expanding their facilities to produce derivatives based on these materials.
The greatest factor driving the growth of this market is the demand from the photovoltaic cell industry, which is expected to grow at a compound annual growth rate of 7.5% from 2019-2025. This has enabled the major players to create innovative materials for improved performance and greater efficiency.
Moreover, technological innovation and the emergence of smart grids are expected to further drive the demand for silicon derivatives over the next few years. Thus, it can be said that silicon derivatives have unprecedented potential in the current market.
The investments on the derivative market can be spread out wide and the investment sizes can be as small or as large as the market allows. This makes it suitable for all types of investors, including the average trader.
The return on investment for derivatives is usually higher than trading the physical products.
The right way of investing in silicon
The average trader typically should invest in stocks and options related to companies making products that use silicon, such as semiconductors, computer chips, and smartphones. Additionally, they may also invest in ETFs or mutual funds that include technology stocks with silicon exposure as part of their portfolio.
Some traders may look to invest in individual companies focused on producing silicon products such as Intel, Applied Materials, ASML Holding NV, and Lam Research Corporation. But the spread on this is obviously less, so there is more risk involved.
The amount a trader typically invests in silicon stocks and options depends on their individual investment strategy, risk tolerance, and financial goals.
Generally, traders tend to invest a few hundred dollars to a few thousand dollars into silicon stocks and options, depending on their objectives. Some traders may invest more or less, depending on their preferences.
Because of the widespread variety of investments, but mainly ETFs and mutual funds, the average trader should view their investment in this raw material as a long-term strategy.
Of course, short-term trading on silicon is a possibility, but if we look in the historical price trend, we can see that volatility is low and the gains on short term are perhaps not worth the costs.
Historical insights
The average historical trend price for silicon is generally on an upward slope.
In the early 2000s, silicon prices averaged around $20 per pound and by 2019 had increased to between $15 to $20 per kilogram.
This steady increase in price is due in large part to increased demand from technology companies as they increase their production of consumer electronics and other products which require silicon components.
We do see the future hold the same trend, due to the abundance of silicon in the world and the increase in research of the use of silicon in our products.
Is silicon a good investment for trading?
Silicon can be a good investment for average traders, as it is an increasingly important resource for manufacturers, and the demand for it is only expected to rise in the future.
Physical silicon however is an industrial-grade material that requires complex machinery and in-depth knowledge of markets to speculate on. It is not suitable for beginners or those without extensive knowledge of the stock market.
Silicon derivative investments are typically designed for very advanced traders with considerable risk tolerance, and the risks associated with these investments may not be suitable for average traders.
It is recommended that most average traders invest in broad, low-risk assets such as mutual funds. However, with due knowledge and research, silicon stocks and options may yield the average trader a higher return on their investment in a shorter amount of time.
Like all investments, however, the risks should be considered: prices can be volatile, so timing and understanding the fundamentals of the market are important. Of course, a sensible diversification strategy should also be employed when investing in anything.
