Definition
The London Metal Exchange (LME) is the leading global platform for trading industrial metals. Founded in 1877, the LME provides futures and options contracts for a range of metals including aluminum, copper, zinc, lead, nickel, and tin. Acting as a centralized market, the LME helps in price discovery and risk management for participants in the metals industry, which includes producers, consumers, traders, and investors.
Examples
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Futures Contracts: A manufacturer of aluminum cans might use LME contracts to lock in aluminum prices for the coming year to manage risk and ensure predictable costs.
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Options Contracts: A copper mining company may purchase a put option on the LME to protect against a potential drop in copper prices.
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Hedging: A steel producer might hedge against price fluctuations in zinc, which is used in galvanizing steel, using LME derivatives.
Frequently Asked Questions (FAQs)
What metals are traded on the LME?
The London Metal Exchange trades a range of industrial metals including aluminum, copper, tin, nickel, zinc, lead, and aluminum alloy.
How does the LME help in price discovery?
The LME’s centralized trading system brings a range of buyers and sellers together, facilitating the transparent setting of metal prices based on supply and demand fundamentals.
Who participates in the LME?
Participants on the LME include metal producers, consumers, traders, speculators, and investors who participate to manage price risks, speculate on price movements, or gain exposure to the metals market.
What are the trading hours for the LME?
The LME operates in three trading sessions each weekday: the Asian Morning session (01:00-07:30 GMT), the Non-Ferrous session (11:40-17:00 GMT), and the Afternoon session (15:20-19:00 GMT).
Related Terms
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Futures Contract: A standardized legal agreement to buy or sell a specific commodity at a predetermined price at a specified time in the future.
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Options Contract: A financial derivative that provides the buyer with the right, but not the obligation, to buy or sell an asset at a specified price before a certain date.
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Hedging: A risk management strategy used to offset potential losses in one investment by making another investment.
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Commodity Market: Physical or virtual marketplace for buying, selling, and trading raw or primary products.
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Spot Price: The current market price at which a commodity can be bought or sold for immediate delivery.
Online References
- London Metal Exchange Official Website
- Investopedia - London Metal Exchange (LME)
- MarketWatch - Latest LME News
Suggested Books for Further Studies
- “The Metal Markets and the Worldwide Metal Industry” by Donald Proctor
- “Metals and Energy Finance: Advanced Textbook on the Evaluation of Mineral and Energy Projects” by Dennis L. Buchanan
- “Handbook of Commodity Investing” by Frank J. Fabozzi and Roland Fuss
- “Commodity Derivatives: Markets and Applications” by Neil C. Schofield
- “The Basics of Commodities Trading” by Scott Besley and Eugene Brigham
Accounting Basics: “LME - London Metal Exchange” Fundamentals Quiz
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