London Metal Exchange - Explained
What is the London Metal Exchange?
Written by J. Mance Gordon
Updated at April 22nd, 2024
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What is the London Metal Exchange?
The London metal exchange refers to a future exchange that occupies the largest world market that relies on the future contracts of bases and other metals. The London metal exchange provides cash trading as well as daily, weekly and monthly contracts. The daily agreements last for a period of three months; weekly contracts last for six months while monthly contracts last for up to 10 years. The LME came into active operation in the year 1877. However, its origin can be traced to 1571. Before the introduction of the exchange, the London business was carried out in coffee houses by use of makeshift rings.
How Does the London Metal Exchange Work?
The London metal exchange began with copper as the only metal for trade. Later zinc and Lead were introduced into the business, but they were only accredited in 1920. During the world war II, the LME was closed until the end of the war when it was then opened in 1954. Before 2012, the LME trade was owned by the founding members. However, during the year 2012, the LME was sold to the Hong Kong exchanges for a cost of 1.4 billion euros. Even though the metal trading business has been in existence for many decades especially in the UK, the origin of the London metal trading exchange can be traced to the opening of the London Royal Exchange in 1571. During this time, the domestic trade was majorly based on the metals and other commodities. Following the increase in global metal trading, the trading of the LME has also increased significantly. Besides, just like any other market, the metal trading has been adapting to changes in the consumer demands by introducing new metals that meet the customer needs. However, copper and Tin has been trading in the market since the beginning of LME trading. Other metals such as Zinc and Lead have also been traded in the market for many decades since 1920. Aluminium and nickel were later introduced to the trading contracts. Currently, LME provides one of the largest world markets in options contracts and futures on base and other metals. However, the LME currently operate under the Hon Kong umbrella since it was acquired in 2012.