London Metal Exchange (LME)

What Is the London Metal Exchange (LME)?

The London Metal Exchange (LME) is a commodities exchange that arrangements in metals futures and options. It is the largest exchange for options and futures contracts for base metals, which incorporate aluminum, zinc, lead, copper, and nickel. The exchange additionally works with trading of precious metals like gold and silver.

The LME is situated in London, England, yet has been owned by Hong Kong Exchanges and Clearing starting around 2012. The prices discovered on the LME are viewed as the standard global prices for base metals.

Figuring out the London Metal Exchange (LME)

The LME is one of the primary commodities markets in the world and considers the trading of metals options and futures contracts. It additionally records futures contracts on its London Metal Exchange Index (LMEX), which is a index that tracks the prices of the metals that trade on the exchange.

Options and futures contracts on the LME are standardized with respect to expiration dates and size. Expiration dates are structured with the goal that traders can browse daily, week by week, and month to month contracts. In the mean time, contracts are traded in sizes called lots, which differ from 1 to 65 metric tons in weight. Parcel size will change contingent upon the metal.

Market participants on the LME are typically hoping to hedge risk or seeking to face risk. A [hedger](/business hedger) may be a producer or consumer and look for a position in a future or options contract to safeguard from future price moves in the metals market. Then again, traders and speculators buy or sell metals futures or options to profit from short-term price moves.

History of the LME

The London Metal Exchange can be followed back similarly as the opening of the Royal Exchange in London in 1571, where traders in metal and a scope of different commodities started to meet. As Britain turned into a major exporter of metals, European merchants started to show up to participate in these activities.

As per the LME's website, the beginning of the "ring" custom started in the mid eighteenth century in the Jerusalem Coffee House. Here, a merchant with metal to sell would draw a circle in the sawdust on the floor and call out "change!" All those wishing to trade would collect around the circle and make their offers and offers.

In 2012, the LME was acquired by the Hong Kong Exchanges and Clearing. Consolidation has turned into a common trend among the world's exchanges as they fight to reduce costs and lift their survival possibilities in an exceptionally competitive sector. For instance, the CME Group acquired the New York Mercantile Exchange (NYMEX) in 2008. NYMEX, thus, had merged with the Comex commodities exchange in 1994, creating the largest physical commodity exchange at that point.

Trading Metals on the LME

The LME has three methods of trading metals: open outcry, through the LME Select electronic trading platform, or by telephone systems. The idea of commodity exchanges is evolving quickly. The trend is moving toward electronic trading and away from traditional open outcry trading, where traders meet eye to eye or in trading pits.

In 2016, CME Group closed the NYMEX commodities trading floor. NYMEX was the last of its sort, however the bulk of its energy and metals volumes had moved to PCs. In a comparable move a year sooner, the CME shut down a commodity trading floor in Chicago and ended a 167-year-old custom of up close and personal trading for electronic trading.

It is hazy how long the LME will actually want to keep up with its physical open outcry trading model. It is the main physical commodity exchange in Europe remaining. In any case, the fast progression and acceptance of electronic trading are not working for the open outcry model.

LME and Ring Trading

"Ring trading" is the method by which certain types of investment business are conducted.

On the LME, trading activity happens in five-minute stretches known as "rings" inside a six-meter measurement circle (a specific type of trading pit). The pit contains two large display boards that show current prices. Every one of the ring-dealing members has a fixed seat inside the ring, behind which an assistant is permitted to remain to pass orders to the ring dealing member and to liaise with customers in regards to market conditions.

Ring sessions are partitioned by trading instruments. For instance, steel trading happens during the principal session from 11:40 am to 11:45 am and in the second session 1:10 pm to 1:15 pm GMT. Trading happens in five-minute spans in the accompanying order: steel, aluminum combination, tin, premium aluminum, copper, lead, zinc, nickel, and cobalt.

Ring trading at the LME happens between 11:40 am and 5:00 pm, be that as it may, official telephone trading is available 24 hours every day. Check the LME's website for an itemized schedule.

Illustration of LME

An investor hoping to trade on the LME has three options: through the LME's electronic portal, LMEselect, the Ring, or on the 24-hour telephone market. Investors must conduct their trading through a LME member. Information on the most proficient method to turn into a member as well as a rundown of LME-ensured members is available on the exchange's website.

Whenever you have chosen a method and member through which you will conduct your trading, the next step is concluding which type of contract and for what metal you're hoping to purchase. The LME offers six contracts for its fourteen underlying metals: futures, options, TAPOs, Monthly Average Futures, LMEminis, and the exchange's index product, LMEX.

Whenever you have concluded what and how you need to trade, essentially sign into your brokerage account and you're ready to go.

The Bottom Line

While the Chicago Mercantile Exchange (CME) Group and the New York Mercantile Exchange (NYMEX) are two of the most popular commodity exchanges in the U.S., the LME is the last physical commodity exchange left in Europe. In the same way as other different industries, the COVID-19 pandemic has caused the LME a few challenges. Nonetheless, with a history dating back to 1571, commodity traders can have confidence that the exchange will adjust as important to furnish investors with its services.

Features

• The LME is the last physical commodities trading market in Europe, as the trend has been moving consistently to electronic trading and away from open outcry.
• The London Metal Exchange (LME) is perhaps of the largest commodity exchanges in the world.
• Hedgers and examiners are active on the metals exchange, with hedgers going to futures and options to relieve risk and theorists seeking to create short-term gains by facing risk.
• Futures and options contracts on metals like gold, silver, zinc, and copper are listed for trading on the LME.

FAQ

How Do LME Warrants Work?

LME warrants are records that address an entitlement to a specific parcel of LME-supported metal. These reports likewise act as a form of insurance for owners. On March 1, 2021, the LME changed to computerized just warrants.

What Is the LME Official Settlement Price?

The LME Official Settlement Price is the last cash offer price at which all LME futures are settled. The daily official settlement price is distributed somewhere in the range of 12:30 and 1:25 GMT.

What Are LME Warehouse and Stock Reports?

The LME consistently distributes a number of reports on its website which incorporate opening and closing stocks, stock developments, stand by times, and canceled and live warrants across areas and metals. Check the LME's website for the most recent warehouse and stock reports.