London Metal Exchange

London Metal Exchange (LME) brokers allow traders to speculate on one of the most important metal commodities exchanges in the world. The London-based exchange is the focal point for futures, forwards and other derivative contracts on a range of base, EV, precious and ferrous metals. In this guide, we will cover the history of the exchange, which metals and contracts are available to trade, how to compare London Metal Exchange brokers, and more.

London Metal Exchange – Trading Basics

The London Metal Exchange is a major commodities exchange and the largest market in the world for standardised derivatives contracts on base metals, including zinc, lead, copper, nickel, and aluminium, as well as precious metals like platinum and palladium. Open since 1877, today the LME is owned by Hong Kong Exchanges and Clearing.

This venerable exchange has some particular marks of distinction – it is the last open-outcry trading floor in Europe, and the prices for commodities discovered on the exchange are considered to be a global standard.

Trades are carried out on the trading floor in a method known as ‘ring trading’, by telephone, or using the exchange’s electronic platform LMESelect. The different tradeable metals are available at different points during this time window. Each metal gets three 5-minute ring sessions throughout the period, with rotating trading periods. The exact timeslots of each of the assets’ trading windows can be found on the LME website.

However, retail traders are most likely to trade indirectly on the exchange through an online broker that offers derivative products based on up-to-date prices of LME futures. Since LME trades are generally not available to non-members, this might be done in the form of synthetic OTC futures contracts, such as those offered by Interactive Brokers. This allows the retail market to trade on LME assets without membership to the exchange, without needing to meet the capital requirements of its derivatives contracts, and without having to directly buy and sell quantities of metal.

History

The London Metal Exchange has a history tracing back to 1571 when the Royal Exchange in London opened. This was a place where merchants gathered to trade many different metals and commodities. By the second half of the 19th century, the metals futures market was booming, causing merchants to struggle to find enough space to trade. As such, the London Metals and Mining Company, now known as the LME, was founded.

In the early years, the London Metal Exchange only traded tin, copper and pig iron. By 1914 it became the world leader in the pricing of copper, tin, zinc, lead, and aluminium.

The London Metal Exchange has been in constant operation since its opening, barring a brief closure during WWI in 1914.

Opening Times

The trading hours at the London Metal Exchange depend on the method used:

• Telephone trading: 24-hour, Monday – Friday
• LMEselect Trading: 1:00 am–5:00 pm GMT/BST, Monday – Friday
• Ring Trading: 11:40 am – 5:00 pm GMT/BST, Monday – Friday
• Online LME Brokers: may set their own trading hours for LME assets

How To Compare London Metal Exchange Brokers

To ensure you maximise your profit-making potential, you will need to find LME brokers that offer the right features and lowest costs for your investing needs. Below, we cover the key things you should keep in mind when comparing London Metal Exchange brokers.

Instruments

There are numerous instruments available to trade on the LME, which itself is the largest market for futures, forwards and options contracts on base metals. However, retail traders will mostly trade commodities using the following derivative products at online LME brokers:

• Futures are the most common way that traders speculate on LME commodity prices. While these derivatives are difficult for retail traders to access directly from the exchange, Interactive Brokers offers synthetic LME futures products based on LME futures. This includes contracts on aluminium, copper, lead, tin, nickel and high-grade zinc.
• CFDs are a convenient and straightforward way to speculate on LME commodities as they require relatively small amounts of capital and don’t involve actually purchasing the assets involved. Since CFDs can be traded with leverage, traders can profit from relatively small price movements and without large cash outlays.
• Spread betting works in a similar way to CFDs, with traders betting on the direction and extent that a commodity’s spread will move past the market price when the contract begins. Spread bets can be made with leverage; they are also popular in the UK as the profits are tax-exempt.

Platforms

London Metal Exchange members can place trades using the bespoke LMEselect electronic trading platform, but most retail traders will need to use the platform supported by their LME brokerage. The best London Metal Exchange brokers support popular platforms like MetaTrader 4/5 or TradingView, while some offer proprietary solutions.

The platform you use will have a significant impact on your investing experience, so consider this carefully when choosing LME brokers. Different platforms offer different tools and features, with some geared toward experienced traders and offering a fuller range of technical analysis tools like MACD, RSI and stochastic oscillators, as well as automated trading capabilities. Others may be more user-friendly, with intuitive designs aimed towards newer traders.

Tip: the best LME brokers allow you to open demo accounts on their platforms, allowing you to test strategies and tools before risking real funds.

Research & Education

To trade effectively, investors need to understand the asset they are trading. Top London Metal Exchange brokers will provide detailed research on the different tradeable metals. This could include price analysis, relevant global economic events, localised mining/supply-side news, relevant company announcements (e.g. increased production of electric vehicles), etc. Extra details like professional analyst reports are also valuable if offered.

Education also plays a big role when choosing LME brokers, especially if you are new to trading metals. Guides and instructions are helpful for traders new to a broker’s platform. Glossaries, blogs/forums and strategy guides and such can be great for inexperienced traders.
Interactive Brokers, for example, offers in-depth investing education through a wide range of teaching methods. These include podcasts, webinars, trading labs, short videos, an economic calendar, blogs, and the ‘Traders’ Academy’.

Fee Structure

The fees and costs associated with trading at London Metal Exchange brokers are key considerations. Brokerages all have different fee structures, with no-commission brokers usually shifting costs elsewhere (e.g. deposit and withdrawal fees or wider spreads).

Other LME brokers may have fees for inactivity or premium services. Finding a London Metal Exchange broker that provides the features you want while keeping fees down is the best way to optimise your metal trading profitability.

Tradeable Metals

The London Metal Exchange has a range of metals available to trade, including base, ferrous, EV and precious metals.

Base / Non-Ferrous Metals

• Aluminium
• Copper
• Zinc
• Nickel
• Lead
• Tin
• NASAAC
• Aluminium Alloy
• Aluminium Scrap
• Aluminium Premium Duty Paid European / US Midwest
• Aluminium Premium Duty Unpaid European

Ferrous Metals

• Steel Scrap CFR Turkey
• Steel Rebar FOB Turkey
• Steel HRC FOB China
• Steel HRC NW Europe
• Steel HRC North America
• Steel Scrap CFR India
• Steel Scrap CFR Taiwan

EV Metal

• Lithium Hydroxide CIF
• Cobalt
• Molybdenum

Precious / Platinum Group

• Platinum
• Palladium

Non-Tradeable Metals

While the London Metal Exchange offers a lot of metals, there are some notable metals missing. These include gold, silver, vanadium, lithium, manganese, bismuth, bauxite, indium, tungsten (wolfram), antinomy, brass, bronze, iridium, zirconium, brass, and titanium prices.

Types Of LME Contracts

The LME offers several different contracts. The most common types available are futures and options. However, the exchange also offers TAPOs, monthly average futures, trade at settlement, HKEX London Minis and LMEminis.

Futures

A futures contract gives the holder the obligation to buy or sell a standard quantity of a specified metal on a set date, at a fixed price agreed on when the contract is created. The London Metal Exchange offers futures contracts in several different time frames. They can be bought/sold daily out to three months, weekly out to six months and monthly out to ten years.

LME brokers typically offer OTC contracts which are cash settled, meaning no physical delivery is necessary. The OTC futures usually reference the corresponding LME future in terms of the price, lot size, type and specifications but aren’t actually registered contracts. As such, traders can effectively trade the futures without having to actually buy or sell the underlying metal.

Options

An options contract gives the right, but not the obligation, to buy or sell the underlying metal at a set price, on a set date in the future. The buyer of the contract pays a known premium for greater flexibility compared to a futures contract. On the London Metal Exchange, these are tradeable out up to 63 months (depending on the metal) and are exercisable at any time up to and including the expiry date (an American-style options contract).

As with futures contracts, LME brokers usually offer cash-settled options.

TAPOs

Traded average price options are options that give traders a flexible way to hedge exposures to the average price of metals. The average price is determined by the monthly average settlement price (MASP) for the month of the contract.

Monthly Average Futures

These are contracts that hedge against the monthly average price. The trader enters into a fixed price and settles the difference against the floating price at the end of the averaging period. The average price is determined by the MASP.

Trade At Settlement

Traders can use the TAS order book on the LMEselect platform to open a buy or sell contract at a price that is equal to (or slightly above/below) the yet-to-be-established 3-month closing price. When the closing price is discovered, the order will deliver the underlying 3-month contract at the closing price, plus/minus the traded TAS price.

HKEX London Minis

These are contracts designed for Asian traders looking to trade using CNH or USD on the London Metal Exchange. As such, this product may be inaccessible to UK traders.

The trades take place on the HKEX derivatives platform, with access to the six base metals: aluminium, zinc, copper, nickel, tin and lead. These are all small-lot, monthly contracts.

LMEminis

These are more accessible futures contracts settled against the LME ‘parent’ contract Official LME Settlement price. These contracts are smaller than regular futures, only trading in lots of five tonnes rather than the 25-tonne parent contracts, allowing for less capital-intensive trading and thus greater accessibility.

LME member firms offer market access to the electronic trading of LMEminis on LMEselect and the LME’s inter-office telephone market.

LME Index

The LME Index (LMEX) is an index based on the six tradeable base metal prices. The weightings of the six metals are derived from the global production volume and trade liquidity averaged over the previous five-year period. The weightings are as follows:

• Aluminium – 42.8%
• Copper – 31.2%
• Zinc – 14.8%
• Lead – 8.2%
• Nickel – 2.0%
• Tin – 1.0%

It is important to note that the London Metal Exchange no longer trades LME Index futures contracts.

Strategy

When it comes to trading with London Metal Exchange brokers, applying well-thought-out strategies is a good way to increase your chance of turning profits. There is no single winning strategy that will work on all metal assets, but through iteration and development, you can develop your own successful strategy.

Below, we will cover a couple of basic strategies that can be implemented to potentially earn profits when trading LME metals.

Fundamentals

Trading with fundamentals essentially means using economic knowledge and analysis in order to determine trends and future price action of metal assets. The key is to keep up to date on news articles, professional analyses, related company announcements, etc. Ensuring you have a reliable information stream is key to making sure your analysis is as accurate as possible.

You should pay particular attention to supply-side shocks, such as natural disasters affecting major mining communities, and demand-side shocks, such as companies announcing increased electric vehicle production. Using this information, create an overall picture of the economic climate surrounding your chosen metals to predict future price movements.

London Metal Exchange brokers that provide plenty of research are especially useful when using a fundamental investing strategy.

Moving Average

The moving average is a popular technical analysis tool that can be used to predict price action. It is used to smooth out price data by calculating the average price over chosen set time periods. This filters out the noise of short-term fluctuations, allowing traders to see the trend. This can be combined with a support and resistance strategy to find points of reversal and thus predict price movement.

London Metal Exchange Regulation

The London Metal Exchange operates in the UK and is regulated by the Financial Conduct Authority (FCA). This regulator is considered the gold standard when it comes to consumer protection and effective oversight. As such, traders shouldn’t fear any breaks of financial fair play when trading directly on the London Metal Exchange.

Most brokers that offer London Metal Exchange access are likely to be regulated by the FCA as well. However, some financial products are banned by the UK regulator, so to access these you may need to look for a brokerage that is regulated elsewhere. Unregulated LME brokers are much riskier to trade with and can lead to unfair capital loss.

Contact Details

The London Metal Exchange can be contacted if investors come across any issues when trading directly with them. The email address contacts for each department are available on the London Metal Exchange website.

General Enquiries Phone Numbers:

• London – +44 (0) 20 7113 8888
• Singapore – +65 6535 5035

General Member and Fee Queries Email Contact:

• RM@lme.com

Office Addresses:

• London – 10 Finsbury Square, London, EC2A 1AJ
• Singapore – 9 Battery Road, #07-02, MYP Centre, Raffles Place, Singapore, 049910

If you are trading with London Metal Exchange brokers instead of directly with the exchange then you will need to contact the customer support teams of the brokers rather than the LME itself.

Bottom Line On London Metal Exchange Brokers

The LME is a storied, historical, and highly important exchange that gives access to numerous tradeable metal products. London Metal Exchange brokers allow retail traders to speculate on these assets without being members of the exchange. Attentive traders can take advantage of global and local economic conditions to turn a profit trading the LME metals. Choosing the right broker and strategy will be essential to increasing your chance of making profits when trading LME metals, so follow our guide to help you along.

Head to our ranking of the best London Metal Exchange brokers to start trading online.

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