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C. Statistics |
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Base
Metals – CTRM Considerations
This page has
some high level notes about Base Metals.
This is intended to share relevant information in the context of CTRM
system design.
Outline
1) List of
Base Metals
2) Trading
Attributes
3) Considerations
for CTRM system design
1) List of Base Metals
Aluminium
https://en.wikipedia.org/wiki/Aluminium
Aluminium
Alloy
https://en.wikipedia.org/wiki/Aluminium_alloy
Copper
https://en.wikipedia.org/wiki/Copper
Zinc
https://en.wikipedia.org/wiki/Zinc
Nickel
https://en.wikipedia.org/wiki/Nickel
Lead
https://en.wikipedia.org/wiki/Lead
Tin
https://en.wikipedia.org/wiki/Tin
Note: These
are considered ‘Non-Ferrous’, meaning no iron in them, unlike steel. See:
https://www.lme.com/Metals/Non-ferrous
2) Trading Attributes
2.1) Units
Base Metals may
commonly trade in MT (metric tons), which is also called ‘tonnes’. This is different than ‘tons’ in the US,
which is 2000 pounds. i.e., a metric ton
is 1000 kilograms.
2.2) Trade
Types
Precious
Metals will trade as
Futures
Options on
Futures
Swaps
(financial derivative)
Financial
Options
Physical Buys
and Sells
3) Considerations for CTRM system design
Note: In the
example below, we’ll say ‘copper’ as an example and use that to refer to base
metals in general, where applicable.
3.1)
Multi-Currency
Need to be
able to support pricing base metals in multiple currencies, e.g., EUR, USD,
GPB. Ideally with minimal extra setup
and nothing special to maintain on an ongoing basis.
3.2) Price
‘Curve’
One of the big
differences for base metals versus other commodities is the term structure of
its forward curve. Whereas energy
commodities tend to be monthly, i.e., 12 price points per year, for base
metals, there is a mix of daily points, weekly points, and then monthly
points.
For Copper,
these are the ‘prompt dates’ on the LME.
Daily: out to
3 months
Weekly: 3 out
to 6 months
Monthly: 7 out
to 123 months
See:
https://www.lme.com/Metals/Non-ferrous/Copper/Futures
And, to
clarify, by ‘daily out to 3 months’, that means that each new day, there will
be a new trading point 3 months out rolling on / becoming active. So a CTRM system will need to
support/accommodate that.
3.3) Risk
Reporting
The 3 month point
(90 days) is of special significance.
Traders may want to see their positions expressed in terms of ‘3 month
point’ equivalent. E.g., if you have a
position of 100 MT of copper for 6 months out, that might be the equivalent
from a market risk point of view as 95 MT of the 3 month point.
As a generic
note, this page is not intended to be a full design spec for base metals for a
CTRM system. Instead, it is intended to
be the seed of information to use as a newly elevated starting point.
Introduction to
CTRM
Click on this
link for a great introduction to CTRM software: Introduction to CTRM Software