12
A Guide to Trading LME SETTING THE GLOBAL STANDARD
A Guide to Trading LME
SETTING THE GLOBAL STANDARD
2 A GUIDE TO TRADING LME
How to trade LMEA guide for metal investors and traders
The London Metal Exchange (LME) metals complex is the most liquid in the world with more than three-quarters 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.
Associated fees for 3 month promptClients pay a total of $2.70 per lot, comprising LME and LME Clear fees. For details of any available incentive programmeson 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.
LME trading
Member categories 1, 2, 3* and 4
LMEselect (electronic) 01.00 – 19.00 London time
LMEsmart matching
Clearing by LME Clear
Ring (open outcry) 11.40 – 17.00
London time (Cat 1 only)Telephone market
24 hours
*Category 3 members can trade and clear their own business, but cannot issue client contracts.
3A GUIDE TO TRADING LME
LMEselect connectivity
Note: market data is now available directly from LMEselect to members’ clients. Data is also available direct to clients via Equinix and Interxion.
The systemLMEselect 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 latencyThe 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 integrityLMEselect’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.
AccessClients 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.
Primary LMEselect – Slough
Secondary LMEselect – Basildon
EQUINIX cross-connect to LME INTERXION cross-connect to LME
MemberISV ISVMember
Category 1 & 2 members
Secure high-speed
private network
Client of member
VPN/internetVPN/internet
10gb circuit 10gb circuit
Market data stream
ISV connection
Control for Algo/HFT
Market data stream
ISV connection
Control for Algo/HFT
Market data stream
Market data stream
Market data stream
Primary circuit
Secondary circuit
HUB HUB
LMEselect
10gb circuit
Zayo – North
Zayo – South
MDS MDS
4 A GUIDE TO TRADING LME
The contracts
Metal Lot size(tonnes)
Annualtradingvolume
Contract types Prompt dates
Non-ferrous metals
LME Aluminium 25mt 39% FuturesTraded optionsTAPOs
Monthly Average Futures LMEminis London Minis
Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 123 months (63 for TAPOs and traded options)
LME Copper 25mt 25% FuturesTraded optionsTAPOs
Monthly Average Futures LMEminis London Minis
Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 123 months (63 for TAPOs and traded options)
LME Zinc 25mt 18% FuturesTraded optionsTAPOs
Monthly Average Futures LMEminis London Minis
Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 63 months
LME Lead 25mt 8% FuturesTraded options
TAPOs Monthly Average Futures
Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 63 months
LME Nickel 6mt 8% FuturesTraded options
TAPOs Monthly Average Futures
Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 63 months
LME Tin 5mt 1% FuturesTraded options
TAPOs Monthly Average Futures
Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 15 months
LME NASAACLME Aluminium Alloy
20mt Under 1% FuturesTraded options
TAPOsMonthly Average Futures
Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 27 months
Minor metals
LME Cobalt 1mt Futures Daily: out to 3 monthsWeekly: 3 out to 6 monthsMonthly: 7 out to 15 months
LME Molybdenum 6mt Futures Daily: out to 3 monthsWeekly: 3 out to 6 monthsMonthly: 7 out to 15 months
Ferrous
LME Steel Billet 65mt Futures Daily: out to 3 monthsWeekly: 3 out to 6 monthsMonthly: 7 out to 15 months
LME Steel Rebar 10mt Futures (cash-settled) Monthly: out to 15 months
LME Steel Scrap 10mt Futures (cash-settled) Monthly: out to 15 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.
5A GUIDE TO TRADING LME
The contractsThere are a number of contract types traded on the LME. Our suite of futures and options are designed to give participants fl exibility whether they are transferring or taking on price risk.
Futures: Physically settled contracts daily out to 3 months, weekly out to 6 months and monthly up to 123 months.
Traded options: American-style monthly options up to 63 months.
TAPOs (Traded Average Price Options): Asian-style monthly average-price options up to 63 months.
Monthly Average Future: A contract where the diff erence between a‘fi xed’ price and ‘fl oating’ Monthly Average Settlement Price (MASP) is fi nancially 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 12 15 27 63 123
Daily prompt dates Weekly prompt dates Monthly prompt dates 12, 15, 27, 63 or 123 months
LME minis Tin, steel,cobalt &
molybdenum
Aluminiumalloy &
NASAAC
Lead, nickel& zinc
Aluminium& copper
The prompt date structure refl ects physical usage and investors in metal know the price is real
Prompt dates for TAPOs, Monthly Average Futures 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
6 A GUIDE TO TRADING LME
Annual trading
$12trillion
4.0billion tonnes
170 million lots
2.5 million lots inopen interest
LME non-ferrous metals trade more than
40 times world production
7A GUIDE TO TRADING LME
The LME in numbers
LMEselect 3 month average daily volume
39% LME Aluminium
23% LME Copper
18% LME Zinc
11% LME Nickel
1% LME Tin7% LME Lead
1% NASAAC, AI Alloy, Steel,minor metals and other
% Distribution of metals traded on the LME (2015)
50,00045,00040,000
35,00030,00025,00020,000
5,0000
Lots
per
day
Average daily volume-all metals
10,00015,000
0
2009 2010 2011 2012 2013 20142007 2008 2015
Average daily volume and market open interest (MOI)
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
-3,500,00
-3,000,00
-500,00
-1,000,00
-1,500,00
-2,000,00
-2,500,00
0
Lots
per
day
Average daily volume Maximum futures M0I
2009 2010 2011 2012 2013 2014
MO
I (lo
ts)
2007 2008 2015
8 A GUIDE TO TRADING LME
Selected metal prices
LME Aluminium – 3 month price
$2,500
$2,000
$1,500
$1,000
$500
$3,000
$3,500
Aluminium
$ pe
r ton
ne
Jan2008
Jan2009
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
Jul Jul Jul Jul Jul Jul Jul Jul
$0
LME Lead – 3 month price
$2,500
$2,000
$1,500
$1,000
$0
$500
$3,000
$3,500
Lead
$ pe
r ton
ne
$4,000
Jan2008
Jan2009
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
Jul Jul Jul Jul Jul Jul Jul Jul
LME Copper – 3 month price LME Nickel – 3 month price
$2,500
$2,000
$1,500
$1,000
$0
$500
$3,000
$ pe
r ton
ne
Copper
Jan2008
Jan2009
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
Jul Jul Jul Jul Jul Jul Jul Jul
$2,500
$2,000
$1,500
$1,000
$0
$500
$3,000
$3,500
Nickel
$ pe
r ton
ne
$4,000
Jan2008
Jan2009
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
Jul Jul Jul Jul Jul Jul Jul Jul
LME Cobalt – 3 month price LME Molybdenum – 3 month priceCobalt
$25,000
$20,000
$15,000
$10,000
$0
$5000
$30,000
$35,000
$ pe
r ton
ne
$40,000
$45,000
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
Jul Jul Jul Jul Jul Jul
$25,000
$20,000
$15,000
$10,000
$0
$5000
$30,000
$35,000
Moly
$ pe
r ton
ne
$40,000
$45,000
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
Jul Jul Jul Jul Jul Jul
9A GUIDE TO TRADING LME
$2,500
$2,000
$1,500
$1,000
$0
$500
$3,000
$3,500
Tin
$ pe
r ton
ne
Jan2008
Jan2009
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
Jul Jul Jul Jul Jul Jul Jul Jul
LME Tin – 3 month price
LME Zinc – 3 month price
$2,500
$2,000
$1,500
$1,000
$0
$500
$3,000
Jan2008
Jan2009
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
$ pe
r ton
ne
Zinc
Jul Jul Jul Jul Jul Jul Jul Jul
LME Steel Billet – 3 month price
$500
$400
$300
$200
$0
$100
$600
$700
Steel Billet
$ pe
r ton
ne
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
Jul Jul Jul Jul Jul Jul
10 A GUIDE TO TRADING LME
Arbitrage opportunities
LME Copper arbitrage
LME Aluminium arbitrage
LME Zinc arbitrage
$12,000
$10,000
$8,500
$6,000
$2000
$0
$ pe
r ton
ne
LME MCX SHFE (Ex VAT) CME
$4,000
Jan2008
Jan2009
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
$2,500
$2,000
$1,500
$1,000
$0
$500
$3,000
$3,500
$ pe
r ton
ne
$4,000
Jan2008
Jan2009
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
LME MCX SHFE (Ex VAT)
$3,000
$2,500
$2,000
$1,500
$500
$0
$ pe
r ton
ne
LME MCX SHFE (Ex VAT) CME
$1,000
Jan2008
Jan2009
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
© The London Metal Exchange (the “LME”), 2016. The London Metal Exchange logo is a registered trademark of The London Metal Exchange.
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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 Futures 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 toCFTC rule 30.10.
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