LME Mark to Market

[gynmeerut]

Could anyone tell me "How forward prices are marked to market(revalued) at LME?"

In other words, If I take a 3-Month forward contract on Copper today, what will be the settlement price for this contract if I want to sell it before maturity?.In particular, how will the settlement take place if I sell it after 10 days and at what price will the settlement take place(Method to arrive at the settlement price)?

* In futures market we get futures prices on daily basis upto the maturity of contract from the exchange, but in case of LME, as per my knowledge there is a new forward contract on daily basis. So everyday there is a price for a new contract. How to arrive at the daily price of a particular contract until it expires?

Any help would be very useful.

Regards,
GS

 

[BREND]

Could anyone tell me "How forward prices are marked to market(revalued) at LME?"

In other words, If I take a 3-Month forward contract on Copper today, what will be the settlement price for this contract if I want to sell it before maturity?.In particular, how will the settlement take place if I sell it after 10 days and at what price will the settlement take place(Method to arrive at the settlement price)?

* In futures market we get futures prices on daily basis upto the maturity of contract from the exchange, but in case of LME, as per my knowledge there is a new forward contract on daily basis. So everyday there is a price for a new contract. How to arrive at the daily price of a particular contract until it expires?

Any help would be very useful.

Regards,
GS

If you short copper today, your prompt date will be 24 Aug 07.
If you buy to cover back your short position next week, say your prompt date is 30 Aug 07.
To knock off your positions, you will need to do a borrow; that means adjust your bought trade from prompt date 30 Aug 07 to 24 Aug 07. Since copper is in a backwardation market now, likely that your bought position have to add a few dollars.

Settlement price is normally based on kerb close price.

 

[gynmeerut]

If you short copper today, your prompt date will be 24 Aug 07.
If you buy to cover back your short position next week, say your prompt date is 30 Aug 07.
To knock off your positions, you will need to do a borrow; that means adjust your bought trade from prompt date 30 Aug 07 to 24 Aug 07. Since copper is in a backwardation market now, likely that your bought position have to add a few dollars.

Settlement price is normally based on kerb close price.

Could you please elaborate a little bit more?

How the cost of borrowing is estimated(LIBOR)?
Am I or my broker is supposed to give delivery on 24th August, 2007 in the above mentioned case?

Is there any other way of settling a position like selling it to a third party. If yes, at what price?


"From your reply it seems that Mark-to-Market is not possible for 3 Month forward contract at LME. If there is a way, please throw some light on this."

 

[BREND]

Could you please elaborate a little bit more?

How the cost of borrowing is estimated(LIBOR)?
Am I or my broker is supposed to give delivery on 24th August, 2007 in the above mentioned case?

Is there any other way of settling a position like selling it to a third party. If yes, at what price?


"From your reply it seems that Mark-to-Market is not possible for 3 Month forward contract at LME. If there is a way, please throw some light on this."

There is no cost of borrowing if you deal with my bank, not sure about other futures house.

You do not have to make deliver on 24th Aug if: a) you close off your position, OR b) roll your futures position for another 3 month, that means your prompt date is adjusted for a future date.

If you are dealing in futures market, your counterparty is your broker, you don't deal with a third party. This is the normal case, unless you are talking about special arrangement which I'm not aware.

 

[gynmeerut]

There is no cost of borrowing if you deal with my bank, not sure about other futures house.

You do not have to make deliver on 24th Aug if: a) you close off your position, OR b) roll your futures position for another 3 month, that means your prompt date is adjusted for a future date.

If you are dealing in futures market, your counterparty is your broker, you don't deal with a third party. This is the normal case, unless you are talking about special arrangement which I'm not aware.

Ok, now consider a case,

I took a long position with a copper 3M forward at LME on 14th May, 2007 @ $7,850 per tonne.
But I want to close my position on 28th May, 2007.

In that case, i'll be able to realize my profit or loss on 27th Aug, 2007.
Please tell me if I understood it correctly.

 

[BREND]

Ok, now consider a case,

I took a long position with a copper 3M forward at LME on 14th May, 2007 @ $7,850 per tonne.
But I want to close my position on 28th May, 2007.

In that case, i'll be able to realize my profit or loss on 27th Aug, 2007.
Please tell me if I understood it correctly.

28th May is a London holiday, so LME is not trading.

Say you close your position on 29th May by executing a sell trade, you will need to adjust your sold trade to the bought trade prompt date. Since copper is in a backwardation stage now, it is likely that you will add a few bucks on your sold trade.

I had started to advise my clients to short copper since copper is at $7765, and prove to be a very profitable trade. Any chance of working together in future? I can add you into our daily commentary for a try if you are interested. PM me your email address.

My view on copper is that it will fall below $7000 again. Had also been asking my clients to sell copper call options, strike $8200, Jun07, premium is USD25/ton then.

 

[gynmeerut]

There is no cost of borrowing if you deal with my bank, not sure about other futures house.

You do not have to make deliver on 24th Aug if: a) you close off your position, OR b) roll your futures position for another 3 month, that means your prompt date is adjusted for a future date.

If you are dealing in futures market, your counterparty is your broker, you don't deal with a third party. This is the normal case, unless you are talking about special arrangement which I'm not aware.

Thanks for answering to my queries. Please tell me few more things,

How the rolling of futures position for another 3 months takes place. what are the transaction charges involved?

What are the brokerage charges for 3 Month, 15 month forward and 3 Month options for LME metal contracts(Copper and Zinc)?

 

[BREND]

Thanks for answering to my queries. Please tell me few more things,

How the rolling of futures position for another 3 months takes place. what are the transaction charges involved?

What are the brokerage charges for 3 Month, 15 month forward and 3 Month options for LME metal contracts(Copper and Zinc)?

Your trade will be affected by commission and adjustment.

You will need to pay another commission when you rollover over your trade. My company will waive off commission if you roll over a period of less than 14 days.

When you rollover contract for copper buy trade, you will lose a few bucks on the adjustment, as copper is in backwardation now (meaning future price is lower than current price). How much is the adjustment depends on the copper evaluation, I do not have the information now, as I'm not working today (LME holiday).

Our commission rate for retail customers is contract value / 1600. However if the customers are recommended by me, I can negoitate for a lower rate.

If you had bought copper at a high price, I do not advise you to roll over, because copper is likely to go lower and break $7000/mt level again. $6900/mt is a very possible level to reach over the next few weeks.

 

[BREND]

Your trade will be affected by commission and adjustment.

You will need to pay another commission when you rollover over your trade. My company will waive off commission if you roll over a period of less than 14 days.

When you rollover contract for copper buy trade, you will lose a few bucks on the adjustment, as copper is in backwardation now (meaning future price is lower than current price). How much is the adjustment depends on the copper evaluation, I do not have the information now, as I'm not working today (LME holiday).

Our commission rate for retail customers is contract value / 1600. However if the customers are recommended by me, I can negoitate for a lower rate.

If you had bought copper at a high price, I do not advise you to roll over, because copper is likely to go lower and break $7000/mt level again. $6900/mt is a very possible level to reach over the next few weeks.

Copper is down another USD85, price is now $7185/ $7188. I hope you have sorted out your trade.

 

[gynmeerut]

Hey Brend,
Thanks for the help and advice. Still exploring the field and doing the research.
Hopefully, would be able to start work on this in some time. Around that time your advice will be very useful.

 

[BREND]

Hey Brend,
Thanks for the help and advice. Still exploring the field and doing the research.
Hopefully, would be able to start work on this in some time. Around that time your advice will be very useful.

You are most welcome. Futures trading is too expensive to go wrong, so make sure that your broker can double up to be your advisor rather than just an order filler.

From what I know (I may be wrong), most brokers in London and Australia do not give advise, simply because they are afraid of being wrong.

 

[gynmeerut]

Brend,

As per our discussion "One will be able to realize profit/loss on his position after 3 months of closing the position."
Is there no other way one can realise the profit/loss on one's position at the time of closing the deal before the contract expiry?
It looks little odd to me that one will have to wait for 3 months to realise, profit/loss on a position.

Give your opinion on this.

 

[BREND]

Brend,

As per our discussion "One will be able to realize profit/loss on his position after 3 months of closing the position."
Is there no other way one can realise the profit/loss on one's position at the time of closing the deal before the contract expiry?
It looks little odd to me that one will have to wait for 3 months to realise, profit/loss on a position.

Give your opinion on this.

No no, you get the wrong idea. You don't have to close off your position after 3 month.

If you had previously go long on copper, to close off position just sell copper, but adjust the prompt date of your sold transaction to that of your bought transaction.

By the way, I've turned bullish on copper now. Shanghai copper inventory fell 3700 plus mt last Friday, so this ease the problem of oversupply of copper in China.

 

[gynmeerut]

No no, you get the wrong idea. You don't have to close off your position after 3 month.

If you had previously go long on copper, to close off position just sell copper, but adjust the prompt date of your sold transaction to that of your bought transaction.

By the way, I've turned bullish on copper now. Shanghai copper inventory fell 3700 plus mt last Friday, so this ease the problem of oversupply of copper in China.

That was my question exactly "At what price I'll be able to sold copper on a given day? "
It will be against the current day starting 3 Month Forward contract or current days cash price.

Moreover, if I sold copper my settlement will take place 3months of date of selling.
This implies i'll be able to realize my loss/gain 3 months from the date of selling the contract.
Am I right.

 

[BREND]

That was my question exactly "At what price I'll be able to sold copper on a given day? "
It will be against the current day starting 3 Month Forward contract or current days cash price.

Moreover, if I sold copper my settlement will take place 3months of date of selling.
This implies i'll be able to realize my loss/gain 3 months from the date of selling the contract.
Am I right.

1st Qn: It will be against 3 month forward contract.
2nd Qn: When you bought copper, there is a prompt date (A date). So when you sell copper to close off your position, you will have another prompt date (B date). Adjust B date to A date, your position will be completely closed.

 

[gynmeerut]

1st Qn: It will be against 3 month forward contract.
2nd Qn: When you bought copper, there is a prompt date (A date). So when you sell copper to close off your position, you will have another prompt date (B date). Adjust B date to A date, your position will be completely closed.

Brend,
Thanks for answering to my basic questions, I just wanted to ensure.
Hopefully, we will work togather in near future.

 

[BREND]

Brend,
Thanks for answering to my basic questions, I just wanted to ensure.
Hopefully, we will work togather in near future.

Welcome.

I just curious how come u are not asking all these basic questions to your broker? U paid commission to them, they should serve u.

 

[gynmeerut]

Welcome.

I just curious how come u are not asking all these basic questions to your broker? U paid commission to them, they should serve u.

In India, trading and hedging at LME was not allowed until recently.
That's why people don't have much idea.
Moreover, LME has perpetual maturity kind of forward contracts so it makes it unique in that sense.
I hope that helps.

 

[BREND]

In India, trading and hedging at LME was not allowed until recently.
That's why people don't have much idea.
Moreover, LME has perpetual maturity kind of forward contracts so it makes it unique in that sense.
I hope that helps.

So u are an Indian merchant, doing hedging on your physical copper, correct?
We have customers from India too.