The Shanghai Futures Exchange received regulatory approval on Wednesday to start trading in silver contracts, giving Chinese investors a new way to bet on the precious metal.

The lot size of the contracts was set at 15 kilograms and the lot prices will be allowed to fluctuate by 5 percent a day. The margin requirement was set at 7 percent and prices will be quoted in yuan. The minimum amount the prices will be allowed to fluctuate was set at 1 yuan (16 US cents).

The silver contracts are the first of their type to be offered in China. Before, investors had to use Shanghai Gold Exchange Ag (T+D) contracts to conduct certain transactions of the metal. They could also go to commercial banks to buy paper silver, which don't have to be delivered physically.

"There has been an absence of a means of trading in silver in China," said Wang Ruilei, an analyst with CGS Co Ltd, a precious metal trader. "The market will be bigger and more liquid with the advent of these future contracts."

The silver contracts will be only one in a series of futures contracts that are to be introduced in what analysts described as a year of innovation for the country's futures market. Futures contracts for government bonds are being tested and are expected to be formally introduced soon. New contracts for crude oil, charcoal and glass are also being developed.

The introduction of silver futures comes after Chinese investors have shown increasing interest in the metal amid surging inflation and the sluggish performance of the stock and property markets - the darlings of Chinese investors. In March, about 134 billion yuan in Ag (T+D) contracts were traded, more than 15 times the amount traded two years ago.

Rather than gold, most retail investors prefer silver because the minimum requirement for investing in it is much lower in China.

However, analysts say silver futures contracts will be more volatile and thus less attractive to individual investors.

Unlike Ag (T+D) contracts, the futures contracts won't be traded in night sessions that are synchronized with global markets. Shorter trading times will exacerbate price fluctuations, which can be dangerous to relatively uninformed individual investors, said Yang Yijun, chief analyst with Wellxin.com, a precious metal consultancy.

In fact, the price of silver has long been volatile. The global price of silver has more than doubled since 2009. On one day last year, it plummeted by 13 percent.

The introduction of the silver futures contracts comes as good news for silver producers, which will now be better positioned to hedge their risks, analysts said.

Silver producers have been selling more and more in the domestic market as the government repeatedly lowers the export tax rebates it offers on silver. In the export market, producers have been able to hedge risks using Commodity Exchange Inc and the London Bullion Market Association but had no sound means of hedging in the domestic market.

The Ag (T+D) contract is not suitable for corporate hedging because it has no set delivery date and charges a daily fee for unsettled contracts, which, in turn, pushes up trading costs.