Trading at the London Metal Exchange (LME)

LME : History | Membership | Types Traded | Further Reading

The London Metal Exchange (also known as the LME) is a commodity exchange based in London, England, that deals primarily in non-ferrous metals. It is the world’s foremost commodities exchange for these materials, with greater volumes of them traded than on any other exchange. [wdca_ad id=”1134″ ]

History of the London Metal Exchange

Though it was formally founded in 1877, the roots of the London Metal Exchange go back even earlier: its precursor, the Royal Exchange, was founded in 1571. Though at first dealing with the domestic metal trade, the Exchange’s operations quickly expanded to include many traders from mainland Europe: this lead to the exchange becoming one of the major centres for the embryonic trade in commodities. It was so successful, in fact, that trade expanded to such an extent that by the 19th century the Royal Exchange was too small to house all of the traders that wished to trade there, and trade spilled out to the local coffee houses, where traders would initiate impromptu trading sessions of their own. The quickening pace of the industrial revolution brought even greater demand for commodities, and eventually this demand was met with the formation of the London Metals and Mining Company in 1877. This efficiency of this new exchange was greatly augmented by the recent invention of the telegraph, enabling rapid intercontinental communication, and also by the opening of the Suez Canal in 1869, which reduced the time taken to transport metal ores from the East Indies. During its history, the London Metal Exchange has always occupied a prime position in the world trade in metal commodities, a position it continues to occupy today: its trading volume has never been higher. One of the ways it has kept its position is by the introduction of new metals and even other substances to be traded as the metals demanded by industry changed: the old standard commodities tin and copper have been joined by lead, zinc, nickel, aluminium and even plastics like polypropylene.

Membership of the London Metal Exchange

There are seven categories of membership of the LME:

  • 1 – Ring Dealing: these members may trade on the trading floor of the LME, known as The Ring, and may also trade via telephone and using LMEselect, the electronic trading platform of the London Metal Exchange.
  • 2 – Associate Broker Clearing: these members have many of the permissions of Ring Dealing members, except they may not trade in The Ring itself.
  • 3 – Associate Trade Clearing: these may not trade themselves, but are LCH (London Clearing House) members. They may deal with members from categories 1, 2 and 4 if LME contracts are desired, but may not deal with each other.
  • 4 – Associate Broker: these members do not have trading privileges and are not LCH members, however they have permission to issue LME contracts.
  • 5 – Associate Trade: these members have no trading or other privileges, however they may act as clients of members in categories 1, 2 and 4.
  • 6 – Individual: reserved for individual members of the LME.
  • 7 – Honorary: reserved for honorary members of the LME.

Commodities Traded on the London Metal Exchange

A variety of metals and other commodities are traded on the LME. Non-ferrous metals traded include aluminium, aluminium alloy, copper, lead, nickel, tin and zinc; related hybrid contracts include LMEX, LMEmini and NAASAC. Other metals traded include steel, cobalt and molybdenum, and the LME has recently initiated the world’s first system for trading the plastics polypropylene and linear low density polyethylene as commodities.

Further Reading

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