A Guide to Trading LME LME.COM

Transcription

1 A Guide to Trading LME LME.COM

2 How to trade LME A guide for metals investors and traders More than 80% of on-exchange non-ferrous futures business conducted on our markets The LME metals complex is the most liquid in the world with more than 80% of non-ferrous futures and options trading conducted on its markets. The prices discovered on its trading platforms are used throughout industry as a global reference price. The possibility of settling contracts physically through LME world-wide approved delivery locations ensures those prices remain in line with the physical market. The link with the physical market attracts unparalleled levels of industrial and investment liquidity creating opportunity for all users. Industrial metals play a significant part in the commodities story. Not just a portfolio diversifier or hedge against inflation, base metals have been a key driver of growth in many funds, and in the case of copper, a bellwether for the world economy. You don t have to be a member to access LME contracts: you can trade through a member of the LME a full list of members is available on our website. Anyone who has a view on metal prices, trades LME. LME trading Member categories 1, 2, 3 * and 4 LMEselect (electronic) London time Ring (open outcry) London time (Cat 1 only) Telephone market 24 hours LMEsmart matching Clearing by LME Clear Associated fees for 3 month prompt Clients pay a total of $2.70 per lot, comprising LME and LME Clear fees. For details of any available incentive programmes on specific contracts, please visit our website. Margin rates set by LME Clear. All platforms are accessible via LME members and all on-exchange member-to-member trades are cleared through LME Clear. * Category 3 members can trade and clear their own business, but cannot issue client contracts. A Guide to Trading LME 1

3 LMEselect connectivity LMEselect EQUINIX cross-connect to LME Market data stream 10gb circuit ISV connection Primary LMEselect Slough Control for Algo/HFT Market data stream Market data stream Dual lease lines Primary circuit 10gb circuit Category 1 & 2 members Client of member Zayo North Zayo South Secure high-speed private network Secondary circuit Dual lease lines Note: market data is now available directly from LMEselect to members clients. Data is also available direct to clients via Equinix and Interxion. 2 VPN/internet MDS ISV Member LD4 closest proximity location HUB HUB Secondary LMEselect Basildon 10gb circuit INTERXION cross-connect to LME Member Control for Algo/HFT Market data stream ISV ISV connection MDS Market data stream VPN/internet The system LMEselect is our electronic trading platform for all LME contracts offering a range of advanced features, all tailored to the LME s unique prompt date structure. Low latency The platform integrates with member trading platforms via a FIX API either from member sites or via community data centres for the lowest latency trading strategies. A standalone GUI is available for members to trade and as an order management console. Data integrity LMEselect s high-availability architecture ensures real-time data integrity across two data centres and the highest levels of service availability and reliability. Members can access the full range of LME trading services from their own systems via secure high-speed networks, and can configure and customise the LMEselect screen to suit their own trading strategies. Access Clients access LMEselect via member systems or member-sponsored ISV platforms. Through member systems, client traffic must pass over a member order-routing bridge and/or an effective pre-trade risk engine, fully controlled by the sponsoring member s compliance team. Alternatively, client traffic passes through an ISV pre-trade risk engine endorsed and fully controlled by the sponsoring member s compliance team. Market data is now available direct from LMEselect to clients of LME members. Algorithm testing LMEstage is our simulated electronic trading platform for the testing of member and client algorithms. Based on LMEselect, LMEstage enables participants to test and develop algorithms without revealing trading strategies whilst also helping to preserve the integrity of the market. The environment runs synthetic trading algorithms which replicate the behaviour of market participants. ESMA guidelines state that algorithms and electronic trading systems should be tested prior to deployment using LMEstage can assist in meeting this regulatory requirement. Find out more at A Guide to Trading LME 3

4 The metals Metal Lot size (tonnes) Annual trading volume Contract types Prompt dates Metal Lot size (tonnes) Contract types Prompt dates Non-ferrous metals Minor metals LME Aluminium 25mt 39% Monthly Average LMEminis London Minis Monthly: 7 out to 123 months (63 for and traded options) LME Cobalt 1mt Monthly: 7 out to 15 months LME Copper 25mt 25% Monthly Average LMEminis London Minis Monthly: 7 out to 123 months (63 for and traded options) LME Molybdenum 6mt Monthly: 7 out to 15 months LME Zinc LME Lead 25mt 25mt 18% 8% Monthly Average LMEminis London Minis Monthly Average Monthly: 7 out to 63 months Monthly: 7 out to 63 months Ferrous LME Steel Billet 65mt Monthly: 7 out to 15 months LME Nickel 6mt 8% Monthly Average Monthly: 7 out to 63 months All contracts quoted in US dollars and clearable in US dollars, pound sterling, Euro and Japanese yen (ex LME Steel Billet). All futures contracts (ex Monthly Average Future and LMEminis) are physically settled but can be closed out prior to settlement with profits and losses paid in cash on settlement date. LME Tin LME NASAAC LME Aluminium Alloy 5mt 20mt 1% Under 1% Monthly Average Monthly Average Monthly: 7 out to 15 months Monthly: 7 out to 27 months The prompt date structure reflects physical usage and investors in metal know the price is real. Daily prompt dates Weekly prompt dates Monthly prompts to 12, 15, 27, 63 or 123 months The contracts There are a number of contract types traded on the LME. Our suite of futures and options are designed to give participants flexibility whether they are transferring or taking on price risk. : Physically settled contracts daily out to 3 months, weekly out to 6 months and monthly up to 123 months : American-style monthly options up to 63 months (Traded Average Price Options): Asian-style monthly average-price options up to 63 months Monthly Average Future: A contract where the difference between a fixed price and floating Monthly Average Settlement Price (MASP) is financially settled LMEminis: Small-lot (5mt), cash-settled monthly futures for copper, aluminium and zinc out to 12 months London Minis: Small-lot (5mt) monthly contracts for copper, aluminium and zinc traded, priced and settled in renminbi on HKEx s derivatives platform. Cash 3 months 6 months LMEminis Tin, molybdenum, cobalt & steel billet Aluminium alloy & NASAAC Prompt dates for, Monthly Average and traded options are: LME Aluminium Monthly out to 63 months, LME Aluminium Alloy Monthly out to 27 months, LME Copper Monthly out to 63 months LME Lead Monthly out to 15 months, LME Nickel Monthly out to 27 months, LME NASAAC Monthly out to 27 months LME Tin Monthly out to 15 months, LME Zinc Monthly out to 27 months Lead, nickel & zinc Aluminium & copper 4 A Guide to Trading LME 5

5 The LME in numbers Annual trading: $14.9 trillion notional 4.0 billion tonnes 177 million lots 2.6 million-lot high of futures market open interest LME non-ferrous metals trade up more than 41 times world production Average daily volume and market open interest (MOI) Lots per day Average daily volume LMEselect 3 month average daily volume Lots per day 800, , , , , , , , ,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Maximum futures MOI 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 0 Average daily volume-all metals MOI (lots) % Distribution of metals traded on the LME () 18% LME Zinc 1% LME Tin 11% LME Nickel 7% Lead 1% NASAAC, AI Alloy, Steel, minor metals and other 23% LME Copper 39% LME Aluminium 6 A Guide to Trading LME 7

6 Selected metal prices LME Aluminium 3 month price LME Lead 3 month price LME Tin 3 month price $4,500 $500 $5, $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 LME Copper 3 month price LME Nickel 3 month price LME Zinc 3 month price $11,000 $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $4, $0 $ A Guide to Trading LME 9

7 Selected metal prices LME Cobalt 3 month price LME Molybdenum 3 month price $44,000 $50,000 $39,000 $45,000 $40,000 $35,000 $30,000 $25,000 $34,000 $29,000 $24,000 $19,000 $20,000 $14,000 Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct LME Steel Billet 3 month price $900 $700 $500 $300 $100 May Sep May Sep May Sep May Sep May Sep 10 A Guide to Trading LME 11

8 Arbitrage opportunities LME Aluminium arbitrage LME Copper arbitrage LME Cash MCX SHFE (Ex VAT) LME Cash MCX SHFE (Ex VAT) CME $11,000 $10,000 $9, $8,000 $7,000 $6,000 $5,000 LME Zinc arbitrage LME Cash MCX SHFE (Ex VAT) $4,

9 All rights reserved. All information contained within this document (the Information ) is provided for reference purposes only. While the LME endeavours to ensure the accuracy, reliability and completeness of the Information, neither the LME, nor any of its affiliates makes any warranty or representation, express or implied, or accepts any responsibility or liability for, the accuracy, completeness, reliability or suitability of the Information for any particular purpose. The LME accepts no liability whatsoever to any person for any loss or damage arising from any inaccuracy or omission in the Information or from any consequence, decision, action or non-action based on or in reliance upon the Information. All proposed products described in this document are subject to contract, which may or may not be entered into, and regulatory approval, which may or may not be given. Some proposals may also be subject to consultation and therefore may or may not be implemented or may be implemented in a modified form. Following the conclusion of a consultation, regulatory approval may or may not be given to any proposal put forward. The terms of these proposed products, should they be launched, may differ from the terms described in this document. Distribution, redistribution, reproduction, modification or transmission of the Information in whole or in part, in any form or by any means are strictly prohibited without the prior written permission of the LME. The Information does not, and is not intended to, constitute investment advice, commentary or a recommendation to make any investment decision. The LME is not acting for any person to whom it has provided the Information. Persons receiving the Information are not clients of the LME and accordingly the LME is not responsible for providing any such persons with regulatory or other protections. All persons in receipt of the Information should obtain independent investment, legal, tax and other relevant advice before making any decisions based on the Information. LME contracts may only be offered or sold to United States foreign futures and options customers by firms registered with the Commodity Trading Commission (CFTC), or firms who are permitted to solicit and accept money from US futures and options customers for trading on the LME pursuant to CFTC rule LME.COM THE LONDON METAL EXCHANGE 10 Finsbury Square, London EC2A 1AJ Tel +44 (0) V8.0/0116