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Trading speculatively on the LME
- Thread starter qazwsxedc
- Start date
Hi. The LME does have some slightly different conventions.
If you have something specific in mind you need to know I can probably help. That being said it is still a futures market but has elements of the OTC fx market. If you want to trade there you'll likely have to go through a global shop like Man, Refco, GNI etc.
cheers
If you have something specific in mind you need to know I can probably help. That being said it is still a futures market but has elements of the OTC fx market. If you want to trade there you'll likely have to go through a global shop like Man, Refco, GNI etc.
cheers
Well, my questions are quite simple to begin with:
1. As I understand it, to open or close a position you specify it the same way as a futures trade on any other exchange, except that instead of a prompt month you give a prompt *date*. Right ?
2. The quote data available from the LME usually includes quotes for spot, one month out, three months out etc. Let's say I enter a three months out position today on the basis of the "3 months" quoted prices. No problem. But if I then want to flatten it a week later, there aren't any quotes available pertaining to the prompt date of my position, because the "3 months" prompt date is now one week later than the prompt date of my position. How do you figure out a sensible price at that time ?
1. As I understand it, to open or close a position you specify it the same way as a futures trade on any other exchange, except that instead of a prompt month you give a prompt *date*. Right ?
2. The quote data available from the LME usually includes quotes for spot, one month out, three months out etc. Let's say I enter a three months out position today on the basis of the "3 months" quoted prices. No problem. But if I then want to flatten it a week later, there aren't any quotes available pertaining to the prompt date of my position, because the "3 months" prompt date is now one week later than the prompt date of my position. How do you figure out a sensible price at that time ?
1. Correct. Same as forward fx. You are basically specifying a forward value date. As you said, the most actively traded contract will be the '3month' price, but there is no reason why you can't go 1 week out for example, or if you day trade for spot.
2. The short answer to your second question is your broker or bank will basically quote you swap points from the current spot (ie a week later) to your original forward value date. As to whether you get a 'sensible price' that will depend on your broker. Typically they will not be too far away from where the market points are, and you can get an indication from the LME feed (there is a lot of stuff on there. If you are using something
like esignal etc I don't think they have that detail). Unfortunately if you are a retail customer you don't have a lot of choice with whom you trade and will have to take what they quote
you when you want to close it out. Obviously swap points will matter only at the margin, get the direction right and it won't be an issue. In effect the sensible price will be what they quote you. Graphically you are effectively doing the following, and are questioning the points on the second BUY-SELL swap in part (ii).
(i) initial date
BUY spot
SELL -----------------------------------------------> BUY SWAP (3 month price)
(ii) a week later you want to close it out
----------------- SELL spot
----------------- BUY ------------------------------> SELL SWAP
The above is your standard transaction with the cash flows being on the far value date. The bank can also adjust your price on the far leg accounting for the time value of money to bring the flows back to the second spot date. But at the end of the day in terms of transacting you just ring them up and tell them whether you want to buy or sell and for what value date. So if you are familiar with the fx market, LME trading is basically the same.
Hope this has been of some help or feel free to PM me. Cheers
2. The short answer to your second question is your broker or bank will basically quote you swap points from the current spot (ie a week later) to your original forward value date. As to whether you get a 'sensible price' that will depend on your broker. Typically they will not be too far away from where the market points are, and you can get an indication from the LME feed (there is a lot of stuff on there. If you are using something
like esignal etc I don't think they have that detail). Unfortunately if you are a retail customer you don't have a lot of choice with whom you trade and will have to take what they quote
you when you want to close it out. Obviously swap points will matter only at the margin, get the direction right and it won't be an issue. In effect the sensible price will be what they quote you. Graphically you are effectively doing the following, and are questioning the points on the second BUY-SELL swap in part (ii).
(i) initial date
BUY spot
SELL -----------------------------------------------> BUY SWAP (3 month price)
(ii) a week later you want to close it out
----------------- SELL spot
----------------- BUY ------------------------------> SELL SWAP
The above is your standard transaction with the cash flows being on the far value date. The bank can also adjust your price on the far leg accounting for the time value of money to bring the flows back to the second spot date. But at the end of the day in terms of transacting you just ring them up and tell them whether you want to buy or sell and for what value date. So if you are familiar with the fx market, LME trading is basically the same.
Hope this has been of some help or feel free to PM me. Cheers