Trading Metals on the London Metal Exchange
The London Metal Exchange is a wholly owned subsidiary of LME Holdings Limited, and is the premier global commodities exchange for non-ferrous metals and plastics. Futures contracts are traded for aluminium, copper, nickel, tin, zinc and lead, together with contracts for polypropylene and low density polyethylene.
Established for over 130 years in the City of London, the London Metal Exchange (LME) has aggregate daily trades valued between $35 – 45 billion.
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As with other leading commodity exchanges, the LME creates a transparent pricing environment in which metal prices are “discovered” for periods of months and years going forward. Added to this price transparency is the framework for all participants along the metal supply chain, from producers to commercial end users, to hedge their price exposure, and so mitigate adverse future price movements.
In fact price discovery at the exchange guides the global metals industry in terms of estimating inventory levels and future supply.
The LME acts effectively as as a “market of last resort” for non-ferrous metals and plastics.
This facility helps to iron out excess supply and demand pressures from time to time.
Trading on the LME There are three ways of trading on the London Metal Exchange, either using the traditional open-outcry system, an internal telephone market link and, growing ever more popular, the electronic trading platform.
If you want to trade on the LME you will need to go through a broker member or a company which acts on behalf of a member. Futures contracts for the non-ferrous metals quoted in dollars and traded on the LME, can be bought and sold through electronic trading platforms offered by the majority of commodity trading brokers. Here are the metals that can be traded:
Let’s say you want to gain exposure to base metal markets through futures contracts and you need to folow daily prices.
Regulation
Investor protection is paramount and the UK Financial Sercvices Authority (FSA) has responsibility under the Financial Services and Markets Act 2000 for authorising and regulating the conduct of LME member firms.
It is very important for investor confidence that the exchange they choose to trade through meets all the requirements for liquidity, transparency and legal compliance.
The London Metal Exchange is a recognised investment exchange (RIE) and complies with UK and international regulations.
The LME and its members also have to take account of EU Directives from the European Commission as well as regulations from the US Commodities and Futures Trading Commission (CFTC) in respect of international trading issues. With reference to CFTC Rule 30.10, LME contracts can only be sold to US foreign futures customers by firms registered with the CFTC, or those firms who can act on behalf of US foreign futures clients for trading on the LME.
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