Spreadbetters and LME

[troyresearch]

I hope you'll forgive me for starting a standalone thread on as this concerns IG Index and the LME market; have split this out from the main IG thread as would be interested in comments from those who trade LME instruments using other spread betting facilities.

The situation:

Was looking at opening two long positions on metals on a 3-month basis earlier today. Poised to place my order when IG confirm that it won't place stops on 3-month LME orders.

I asked whether this was house or industry practice, and was given the latter as a response.

A quick survey of other spread betting firms suggests otherwise - all seem perfectly happy to accept stops on 3-month LME contracts.

Given the circumstances I was faced with today, however tempting the two positions, I backed away from the trades as I wasn't allowed to place stops.

Anyone with other experiences of trading these markets using the same or other firms - and can anyone point to a plain English of contago and backwardation?

 

[Directional]

that seems odd. Email IG and ask for an explanation, quoting the other SB firms who do accept stops.

 

[minx]

Anyone with other experiences of trading these markets using the same or other firms

Just over a year ago MAN Financial told me I couldn't place stops on LIFFE commodities as the system was for professional traders only and it didnt support stop orders. Kinda made me wonder what the point of having a broker was. I stopped using them.
My advice is to do the same or use direct access software that generates computer held stops.

 

[oatman]

Backwardation: When the near delivery is at a premium to the next.
ie. in metals Spot is over 3months.
Contango: A discount on the same.
......or http://en.wikipedia.org/wiki/Contango

 

[troyresearch]

Update: I asked IG for an explanation and was told that it was company policy, based on the way in which prices are disseminated from the LME (ie no way of monitoring real-time). When I asked why competitors were happy to offer stops, while IG wouldn't the response was that either these other firms had found a way of monitoring prices real-time or some other means of valuing the market; alternatively there might be some uncertainty as to how / when stops are filled. I'll pick this up with the firms which are prepared to offer stops and see what they have to say.

 

[minx]

When I asked why competitors were happy to offer stops, while IG wouldn't the response was that either these other firms had found a way of monitoring prices real-time or some other means of valuing the market; alternatively there might be some uncertainty as to how / when stops are filled. I'll pick this up with the firms which are prepared to offer stops and see what they have to say.

Are metals traded electronically on the LME as well as the ring trading? I'll be very interested to hear the outcome of your enquiries. I certainly wouldn't be trading metals without stops in the mkt especially considering the current volatility.

 

[Directional]

nope LME is open outcry only... the only pit traded floor left in europe i believe

 

[Quenkish]

My advice is to do the same or use direct access software that generates computer held stops.

Which direct access software do you recommend?

 

[troyresearch]

LME eyes profit-making option

This recent article from the FT is quite a useful backgrounder on the LME past, present and future:


Strategic review aims to 'maximise long-term economic value to owners' - Move could pave way for outright sale or flotation

The London Metal Exchange, the world's largest base metals market, is looking to turn the 129-year-old exchange from a non-profit entity into a profit-making organisation. The move could pave the way for an outright sale of the exchange or a potential initial public offering.

The exchange has long been seen as conservatively run but the biggest boom in metal prices in decades and the success of other commodity exchanges in turning from member-only clubs into stock market favouritesfollowing IPOs have prompted the LME to consider other options.

The LME accounts for about 90 per cent of global metal derivatives trade. Its nearest rivals, the Shanghai Futures Exchange and Comex, which is part of the New York Mercantile Exchange, share the rest. Unlike its peers, what little profit the LME makes it returns to members through rebates on trading fees.

Donald Brydon, LME chairman, said in a letter to exchange members: "To ensure the continued success of the exchange, the board has asked the executive to prepare a plan to recommend the operational strategy and organisational structure required to maximise the long-term economic value, to its owners, of the exchange."

One LME insider said the ownership review had not been triggered by an offer for the exchange. "If someone wanted to buy the LME, they would have to have a knock-out offer to get all members to accept it," he said.

The LME move comes days after Simon Heale, its chiefexecutive, said he would leave the exchange at the end of the year.

However, it is understood that Mr Heale has been actively involved in the strategic review and is impartial to the outcome.

The LME is the last big commodity exchange that is member-owned. Its larger peers, theIntercontinentalExchange (ICE),Chicago Board of Trade and the Chicago Mercantile Exchange, have listed in the past five years and, as a consequence, have seen their share prices soar on strong futures trading volume growth. This in turn has added billions of dollars to their market valuation.

One of the first steps down the demutualisation track will come at the end of the month when LME members vote at an extraordinary general meeting to de-couple the trading and membership rights of each share held by members. This proposal, as well as a parallel LME request for permission to issue new shares from its unissued share capital, is designed to attract more members and shareholders to the exchange.