LME Futures
Environment
Setting up your environment takes three steps:
Import the relevant internal and external libraries
Configure the environment parameters
Initialise the environment
Learn more: Setting up the environment
LME Futures 'forwards'
Metal futures on LME work slightly differently to a traditional future.
Although LME instruments are exchange traded and referred as futures these contracts are closer to a forward contract.
While traditional futures have fixed listing schedule, for instance monthly or quarterly, LME Futures issues a new 3M expiry contract each day, 6M expiry each week and 10 years expiry each month.
In the example below we are creating a LME forward for Zinc expiring 3rd Wednesday May-21. The history output is the present value of the said contract.
To query the fair forward strike at any point in time the method .fair_strike()
is used:
To query the fair strike for the duration of the forward the .history()
with argument FairStrike
is used:
Replicating Standard Futures with LME Forwards
To replicate a similar behaviour of a traditional quarterly future contract, without entering into the new forward listed every day, LME forwards trade as spreads between the 3M forward and any of the outstanding future contracts.
The spreads are defined as a contract to take, or make, delivery of the 3M forward and make, or take, delivery of a given future contract. The price is equal to
In the example below LMESpreadContract
simultaneously buys a 3M forward May-21 expiry and sells a 3M expiry forward:
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