There are 10 kinds of nonferrous metals listed on the international futures market, namely copper, aluminum, lead, zinc, tin, nickel, palladium, platinum, gold and silver. Among them, gold, silver, platinum, palladium and other futures are also known as precious metal futures due to their high value. Gold, silver, copper and platinum are the main commodities. Gold, silver, copper and platinum are the four major products of metal futures. Among them, gold is mainly used as a hedge, central bank reserve and part of the trading medium. The rest are industrial metals.
1. The emergence and development of metal futures
In the early 1970s, the futures markets of agricultural products were developed and developed gradually. With the rapid development of American futures market, the European futures market represented by London Metal Exchange (LME) has begun to accelerate the formation and development.
Metal futures are also known as nonferrous metals futures. Nonferrous metals refer to all metals except ferrous metals (iron, chromium, manganese). Among them, gold, silver, platinum and palladium are called precious metals because of their high value. The quality, grade and specification of non-ferrous metals are easy to be classified, with large trading volume, easy price fluctuation and storability, so they are very suitable for futures trading. At present, the main trading varieties include copper, aluminum, zinc, tin, nickel and aluminum alloy futures contracts. Copper is one of the leading products. It is also the first established metal futures trading variety with a history of more than 100 years.
In the mid-19th century, Britain had become the world's largest producer of tin and copper. With the continuous growth of industrial demand, Britain began to import copper ore, and tin ore was refined in China. However, under the conditions at that time, due to the problems of road transportation, the prices of copper ore and tin ore often went up and down, with great risks. At that time, British merchants and consumers faced with copper and tin Price risk: the method of booking price is adopted. Before the goods arrive, the contract is signed for the future arrival of goods, so as to ensure that when a large number of goods are transported, they can be sold, and when the quantity is limited, the price will not rise sharply.
In 1876, the London Metal Exchange (LME) was formally established, mainly engaged in copper and tin futures trading. After that, the London Metal Exchange (LME) trading mode developed rapidly. In particular, futures trading in the form of trading circle became the most important trading mode at that time and even now. At that time, pig iron, lead and zinc were only traded outside the trading circle, It is also called "outside trading". In 1920, lead and zinc were officially traded in the trading circle, and the pig iron trade was terminated. In the following decades, only copper, tin, lead and zinc were traded on the London Metal Exchange. Since its establishment, the London Metal Exchange (LME) has been booming. With the continuous expansion of the exchange, the trading varieties have been further increased, the trading scale has been expanded, and the market mechanism has been gradually improved, making it the world's largest international metal products exchange recognized by the industry. Up to now, the metal futures of the London Metal Exchange have developed from the original copper and tin varieties to the present The seven futures products, namely, copper, aluminum, lead, zinc, nickel, tin and aluminum alloys, have formed an international metal trading market represented by these seven metals.
At the end of the 19th century and the beginning of the 20th century, American economy shifted from agriculture to the establishment of modern industrial system. The types of futures contracts gradually expanded from traditional agricultural products to metal and energy commodities. The New York Mercantile Exchange (Comex), established in 1933, was formed by the merger of the exchanges dealing in leather, raw silk, rubber and metal. The current trading varieties of the New York Mercantile Exchange include gold, silver, copper and aluminum.
At present, among the major exchanges engaged in metal futures in the world, the London Metal Exchange, the New York Mercantile Exchange and the Shanghai Futures Exchange (SHFE) are the main trading places, After the Second World War, metal futures trading has made great progress and gradually internationalized. Among the New York Mercantile Exchange and the London Metal Exchange, and between the London Metal Exchange and the Shanghai Futures Exchange, speculators continuously carry out arbitrage trading by taking advantage of the price difference of metal futures in different exchanges, which makes the three main metal futures The price of the exchange tends to be the same.
2. Purpose of metal futures
Investment in metal futures mainly involves speculation, hedging and arbitrage
According to the judgment of the market, seize the opportunity, use the price difference of the market to buy and sell, so as to obtain profits. Speculators can "buy short" or "sell short". The purpose of speculation is very direct - that is, to make a profit from the spread.
According to the duration of holding futures contracts, speculation can be divided into three categories:
The first is long-term speculators, who usually hold futures contracts for days, weeks or even months after buying or selling them, and then hedge the contracts when the price is favorable to them;
The second type of short term trading is the one that does not trade overnight;
The third type is small profit chasers, also known as "hat Snatchers". Their skill is to trade with small price changes to obtain small profits. They can do multiple rounds of trading within a day.
It is to buy (sell) futures contracts with the same quantity as the spot market, but in the opposite direction, in order to compensate for the actual price risk caused by the price changes in the spot market by selling (buying) futures contracts in the future.
The most basic types of hedging can be divided into buying hedging and selling hedging. Buying hedging refers to buying futures contracts through futures market to prevent losses due to rising spot prices; selling hedging refers to selling futures contracts through futures markets to prevent losses caused by falling spot prices.
Hedging is the driving force of the futures market, especially the metal futures market, which is originated from the trading behavior of forward contracts formed spontaneously in the process of production and operation in the face of the risk caused by the sharp fluctuation of spot price. The trading mechanism of this kind of forward contract trading has been continuously improved, such as standardizing the contract, introducing hedging mechanism, establishing margin system, etc., thus forming the modern futures trading. Through the futures market, enterprises buy insurance for production and operation, which ensures the sustainable development of production and operation activities. For example, the aluminum price has risen sharply recently. In order to prevent the profits from shrinking due to the fall of aluminum price, a large aluminum factory will sell aluminum contracts in different contract months in the Shanghai aluminum market when the aluminum price rises to more than 15300 yuan / ton. Even if the aluminum price falls sharply in the future, the profit has been locked in the market.
Buying and selling two different types of futures contracts at the same time. Traders buy what they consider to be "cheap" contracts and sell those "high priced" contracts, benefiting from the changing relationship between the prices of the two contracts. In arbitrage, traders pay attention to the mutual price relationship between contracts, not the absolute price level.
Arbitrage can be divided into three types: intertemporal arbitrage, cross market arbitrage and cross commodity arbitrage.
Intertemporal arbitrage is one of the most common arbitrage transactions. It can be divided into two forms: Bull spread and bear spread. For example, in metal bull market arbitrage, the exchange buys the metal contracts in the recent delivery month and sells the metal contracts in the forward delivery month, hoping that the price of the recent contract will rise more than the book entry range of the forward contract price; on the contrary, bear market arbitrage is the opposite, that is, selling the contract of the recent delivery month, buying the contract of the forward delivery month, and expecting the price of the forward contract to decline This is less than the price drop of recent contracts.
Cross market arbitrage is a kind of arbitrage between different exchanges. When the same futures commodity contract is traded in two or more exchanges, due to the geographical differences among regions, there is a certain price difference relationship between commodity contracts. For example, London Metal Exchange (LME) and Shanghai Futures Exchange (SHFE) both trade cathode copper futures. The price difference between the two markets will exceed the normal range several times a year, which provides an opportunity for traders to carry out cross market arbitrage. For example, when the price of LME copper is lower than that of SHFE, the trader can buy LME copper contract and sell SHFE copper contract. When the price relationship between the two markets returns to normal, the trading contract can be hedged and closed and profit from it, and vice versa. In the cross market arbitrage, we should pay attention to several factors that affect the price difference of each market, such as freight, tariff, exchange rate, etc.
Cross commodity arbitrage refers to using the price difference between two different but related commodities. These two kinds of commodities are mutually replaceable or restricted by the same supply and demand factors. The form of cross commodity arbitrage is to buy and sell different kinds of commodity futures contracts in the same delivery month at the same time. For example, arbitrage can be carried out among metals, agricultural products, metals and energy. The continuous arbitrage of traders will help the distorted market price return to normal level and enhance the liquidity of the market.
3. Main reasons for choosing to trade metal futures
1. The trading of American futures market is conducted through exchanges, and many exchanges are closely regulated and regulated by NFA (National Futures Association) and CFTC (Commodity Futures Trading Commission). After decades of practice, the operation and supervision mechanism of futures market has been very mature and successful. For traders, it is a very favorable choice.
2. The U.S. futures market is also very liquid and transparent, because it is traded through an exchange, so the trading volume and all trading behaviors are completely open to the market - whether you are an individual or an institution, the information you get is the same. The futures market in the United States has been proved by practice that the market with Changshu structure is a wise choice for speculators and hedgers.
3. Leverage trading gives investors the opportunity to enter the market with less capital, and they can choose long-term or short-term trading. Of course, there are risks in leverage trading.