The London Metal Exchange (LME) is the world's largest market for trading metal contracts. Founded in 1877, the LME has become a global institution and is widely recognized as a price indicator for metals worldwide. In this article, we will explore everything you need to know about it, from its history to how it works and how investors can take advantage of it.
Brief History of London Metal Exchange
This institution was founded in 1877 as the London Metal Market and Exchange Company and was established to provide a market for trading copper bullion. Over time, the market expanded to include other metals, such as aluminum, lead, zinc, and nickel. In 2012, steel futures contracts were launched, and in 2015, the lithium futures contract was added.
How does the LME actually work?
The first thing we need to know about the London Metal Exchange or LME is a voice and electronic trading exchange market that allows the trading of metal futures and options contracts. These deals and exchanges are traded on a public exchange, which means that buyers and sellers can access the market without needing a private account. Prices are set through supply and demand, and are published in real time on the organization's platform.
The LME operates with a daily settlement system, which means that contracts are settled daily based on the previous day's closing price. This allows investors to maintain open positions for extended periods without incurring additional costs.
It also offers metal storage and delivery services, which means that investors can take physical delivery of the metals if they wish. The London Metal Exchange has a network of warehouses around the world, which meet international storage and safety standards.
How are prices quoted in the organization?
Prices are quoted in US dollars per metric ton and are based on the market reference prices for each metal. Prices are determined by supply and demand, and are updated in real time on the LME platform.
Now, the prices of futures contracts are set through an open auction process. Market participants can submit buy or sell orders before the auction, and the price is set based on supply and demand.
How can businesses and investors use the London Metal Exchange?
Companies can use the London Metal Exchange in several ways to benefit from metal trading. Some common ways in which investors can take advantage of the LME include:
Buying and selling metal futures and options contracts on the LME platform.
Using the organization's reference prices as a price indicator for metals worldwide.
Taking physical delivery of the metals through the storage and delivery services of the London Metal Exchange.
Using the LME as a source of information for investment decision making.
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