Generally there are two types of Exchange Traded Funds that deal in silver where a trader can invest. First type of ETF is where banks or financial institutions actually hold silver and Second type of ETF is where fund managers invest in the futures and options that track the price of silver. Both the types of ETF will move in the same direction as the current cash price of silver. Silver ETFs become a perfect investment for banks or institutional investors looking for short term gain or who wants to use this commodity fund to hedge their risks from other investments for a while. However, there are a limited number of investors who are looking for long term gains out of this precious metal based on its robust historical data and also because they want to play safe.

Some of the most popular Silver ETFs are as follows:

1.) iShares Silver Trust (SLV): This fund is quite old in comparison to others that offer Exchange Traded Funds in Silver, it is also one of the largest of all. SLV is a fund that holds physical silver and keeps the investors free of the headaches associated with holding precious metals. Today iShare Silver Trust holds silver worth $4.54 billion.

PowerShares DB Silver Fund (DBS): Unlike its counterparts this fund doesn’t hold physical silver but it invests in derivatives that track spot price of silver. Futures and options contracts these fund deal in are based on an index managed and developed by Deutsche Bank.

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Commodity ETF can be of various different types however a largest part of ETFs replicate the gains of commodities with the help of investments in commodity futures markets. A great feature of ETF which many of you might be aware about by now which is they can be traded like stock and also unlike mutual funds they can be bought and sold during the market hours.  Some ETFs only invest in the commodity derivatives, there are some funds that buy the actual commodity where as there are some that buy stocks of companies that deal in that commodity in some or the other ways. Further, there are funds dealing in multiple commodities which can be a hedging instrument or for the traders looking for diversity in their portfolio.

On a broad scale ETFs can be distinguished into following six classes:

1.)    Precious metals
For Example: PowerShares DB Gold Fund ETF (DGL) managed by DB Commodity Services is based on the futures contracts on gold and it tracks overall gold performance.

2.)    Natural Gas
For Example: The main goal of this kind of ETF (UNG) tracks changes in the percentage in the NAV which reflects the price of natural gas.

3.)    Base metals
For Example: PowerShares DB Base Metals Fund (DBB) based on  Optimum Yield Industrial Metals Excess Returns (Index) which includes futures contracts of most liquid and mostly all base metals – aluminum, copper and zinc.

4.)    Oil
For Example: PowerShares DB Oil Fund (DBO) again based on Deutsche Bank and this Index is based on futures contracts on Light Sweet Crude Oil (WTI) and it tracks overall Oil performance.

5.)    Agricultural commodities
For Example: PowerShares DB Agriculture ETF includes future contracts of widely traded commodities relating to agriculture namely corn, wheat, beans, sugar and wheat.

6.)    Other commodity related ETFs: These types of funds invest in multiple commodities as opposed to funds that concentrate on one single commodity.

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