Trading on the LME
London Metal Exchange
The London Metal Exchange is the world centre for industrial metals trading and price-risk management. Located in the city of London, the London Metal Exchange was founded in 1877, but the market traces its origins back to 1571 and the opening of the Royal Exchange, London. Before the exchange was created, business was conducted by traders in London coffee houses using a makeshift ring drawn in chalk on the floor. At first only copper was traded. Lead and zinc were soon added but only gained official trading status in 1920. Since then, the range of metals traded was extended to include aluminium, nickel, tin, aluminium-alloy, and most recently, minor metals cobalt and molybdenum. The exchange ceased trading plastics in 2011.
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 benchmark price, the possibility of settling contracts physically through LME world-wide approved delivery locations ensuring that 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 have played a significant part in the story of commodities. Not just seen as 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 barometer for the world economy. Anyone who has a view on metal prices, trades LME.
Participants can trade one of the London Metal Exchange’s 11 underlying metals using futures, options, TAPOs, LMEswaps, LMEminis and their index product LMEX. The LME’s contracts allow all those along the metal supply chain, as well as investment communities, to hedge against or take on price risk. Designed with the metal community at its core, its daily, weekly and monthly prompt date structure mirrors physical trading. All LME contracts are traded in lots which vary in size from 1 to 65 metric tonnes depending on the underlying metal and are priced in US dollars. The LME publishes official exchange rates to enable settlement in pound sterling, Japanese yen and Euros, as well as US dollars.
The only organisations able to trade contracts on the LME are its member firms. However, you do not have to be an LME member to trade on the LME. Clients who have successfully opened an account with an LME member are able to trade with and through them to access the market. The total value of the trade conducted at the London Metal Exchange is around $US 11.6 trillion annually.