Each trade is structured to provide flexible timeframes in reference to a specific expiration date. It means that traders are free to select desired contract periods. They may include daily, weekly or monthly contracts depending on a chosen trading strategy. At the same time, the volume of each traded contract is measured in lots ranging from 1 to 65 metric tons in weight for each traded metal. If you are a beginner trader, you might appreciate using lot trading calculators to make things a bit simpler.
On the one side, we have LME market participants who act as hedgers (both producers and consumers). Their main mission is to find a secure position in a futures contract that will keep their assets safe from unpredictable metal price moves in the future.
On the other side, we have LME market participants that operate as speculators (traders). They purchase or go short on futures contracts to make a profit on the rapid price movement within short time frames.
London Metal Exchange Trading Methods
It does not matter what group of market participants you represent. On the London Metal Exchange, there are three major techniques to perform trades. They include the following:
- Open Outcry. This methodology used to be popular with trades back in 2010. The idea is to manage commodities and futures in trading pits. The main feature of this particular method involved live signal and verbal communication between traders. Today, these methods are replaced with more advanced digital trading platforms.
- Telephone System. Another brick-and-mortar modality where traders or brokers accept orders from their customers by phone in real-time.
- LME Select electronic trading platform. An advanced trading methodology that makes it possible to handle contracts electronically. It makes the process faster making it possible for market participants to execute a bigger number of trades simultaneously.
With the introduction of modern ways of trading delivered by advanced technologies. CME Group had nothing to do but close the NYMEX floor in 2016. This is where actually commodity trading took place on a face-to-face basis featuring trading desks and other elements that have gone out of date.
Furthermore, the exchange was forced to end its 176-year history in Chicago and close the local commodity trading floor as well. It seems like the London Metal Exchange is about to give up maintaining its open outcry modality in favour of advanced electronic instrumentation.
Terms to Trade on LME
Although the exchange keeps going digital, baseline terms are still the same. If you want to enter the futures and commodities market on one of the biggest exchanges, you will need to know the following
- LME Warrants – documents that prove one’s entitlement to the underlying lot.
- Official Settlement Price – the last offered and settled price in cash for the futures contract.
- Warehouse and Stock Reports – official reports featuring opening and closing stocks, cancelled warrants, stock movements, and so on.