Diversity of trading methods: The trading methods of foreign futures demonstrate their flexibility, not limited to electronic trading, but also integrating open call trading and over-the-counter trading, providing investors with diverse ways to participate. Specifically, certain products such as CME forex and NYMEX precious metals have achieved nearly 24-hour round the clock trading, greatly enhancing market activity and trading efficiency.
Differences in trading hours: Trading hours cover major time zones around the world, generally from Monday to Friday. The specific time period varies depending on the exchange and variety, and may include day and night trading, providing continuous trading opportunities. Investors need to refer to the specific contract details and follow the exchange’s announcement to arrange trading hours reasonably.
Market Order: Trade directly at the current best market price to quickly respond to market changes, but it should be noted that some exchanges may not support this type of order.
Limit Order: Investors set the expected buying or selling price, and the system executes at this price or a better price, providing flexibility in price control.
Stop Order: When the market price reaches the preset trigger point, it automatically trades at market price, effectively managing risk. However, it should be noted that some markets do not support market stop orders.
Stop Limit Order: Combining the characteristics of stop loss and limit price, when the stop loss trigger price is reached, enter the market in the form of a set limit order to further refine risk management.
Spread Order: The implementation method of cross period arbitrage strategy, which profits by buying and selling contracts of different months or varieties at the same time using the spread.
Validity period setting: Limit orders, stop loss orders, and limit stop loss orders need to be set with an effective time, usually on the same day (GTD) or long-term (GTC), to meet the needs of different investment strategies.
Trading unit: Foreign futures are based on “contracts” as the basic trading unit, with the minimum trading unit being one standard contract. The specific specifications vary depending on the variety.
Opening and closing rules: The operation of external futures is simplified to buy and sell, and the automatic hedging and closing mechanism avoids the phenomenon of locking orders in internal trading, improving trading efficiency.
Limit up and limit down and circuit breaker mechanism: Most external products do not have limit up and limit down restrictions, but some adopt circuit breaker system to cope with extreme price fluctuations and protect market stability.
Delivery method: When foreign futures expire, physical delivery or cash delivery can be used. Cash delivery calculates profits and losses through settlement prices and is paid in cash, while physical delivery involves the transfer of ownership of the subject matter.
Special precautions: The delivery mechanisms of LME and other exchanges may vary, and investors need to pay special attention to relevant rules to avoid unnecessary delivery risks.
The initial margin is the deposit that needs to be paid at the beginning of a transaction, usually a certain percentage of the contract value, as a preliminary guarantee. If the client’s funds are below the initial margin standard, they cannot open a position.
Maintaining margin is the minimum level of account funds that need to be maintained to ensure ongoing compliance with risk management requirements. The supplementary amount needs to meet the standard of initial margin.
6.1 Main trading varieties: including copper, aluminum, lead, zinc, nickel, tin, etc. The trading varieties are divided into current month contracts, next month contracts, and contracts for the next few months, with a contract specification of one ton of metal.
6.2 Order types: including market orders, limit orders, stop loss orders, stop loss limit orders, and option contracts.
6.3 Transaction fees: including transaction handling fees, margin, and warehousing fees, etc. The specific fee standards can refer to the LME official website.
6.4 Contract Characteristics: LME contracts are for rolling delivery, and the contracts bought and sold in electronic trading on a daily basis are not the same contract. Investors need to pay attention to the expiration date of the contract.
If investors do not open and close positions on the same trading day, the expiration date of the open position and the expiration date of the open position will be different from that of the open position. They need to contact our staff to adjust the two to the same date through a rescheduling transaction.
6.5 Adjustment Rules
LME contracts use a rolling delivery method, and the contracts bought and sold on the electronic market every day are not the same contract. Therefore, when investors engage in buying and selling operations, they are actually trading contracts with different maturity dates. If investors need to ultimately close their positions, they need to perform a rescheduling operation.
Adjustment form:
Borrowing: buying futures with short-term delivery and selling futures with forward delivery.
Lending: Sell futures with recent delivery and buy futures with forward delivery.
Adjustment Example: Suppose an investor buys a CU contract at $5200/ton on August 20th and sells it at $5400/ton on August 21st. Due to the different expiration dates of the buying and selling contracts, investors did not actually close their positions. To close a position, investors need to perform a rescheduling operation, such as selling contracts expiring on August 20th and buying contracts expiring on August 21st.
6.6 liters of water and premium rules
Premium: Forward prices are higher than short-term prices (i.e. futures prices are higher than spot prices), abbreviated as “c”.
Margin: Forward prices are lower than short-term prices (i.e. futures prices are lower than spot prices), abbreviated as “b”.
There is no fixed pattern for the premium increase, it depends entirely on the market. The size of the premium is influenced by factors such as the concentration of long and short positions in the market, delivery or pickup situations, and the distribution of time adjustment transactions. If investors switch from short-term contracts to forward contracts (i.e. Borrowing operations) and the market is in a Contango state, they may receive certain returns (i.e. premiums); On the contrary, if the market is in a backward state, investors will need to pay additional fees (i.e. premiums).
The trading rules, adjustment rules, and markup rules of the LME exchange are interrelated and influence each other, together forming the unique trading system of the LME market. Investors need to fully understand these rules and their interrelationships when participating in LME trading in order to develop reasonable trading strategies.
Transaction costs: Foreign futures trading involves transaction fees, including margin, exercise fees, handling fees, etc.
Investors need to understand and calculate transaction costs in order to better evaluate investment returns.
Compliance: Investors should ensure that their trading behavior complies with laws, regulations, and regulatory requirements, and avoid the risks brought by illegal and irregular behavior.
In short, the rules for trading foreign futures involve multiple aspects such as trading time, trading varieties, trading mechanisms, trading instructions, risk management, settlement and withdrawal, account opening and trading platform selection. Investors should fully understand the relevant rules and risks before engaging in foreign futures trading, and develop reasonable investment strategies and risk management plans.
In summary, foreign futures trading exhibits its uniqueness and complexity in terms of methods, timing, order types, trading units, rules, and delivery methods. Investors should fully understand and follow relevant regulations before participating to ensure the smooth progress of trading activities.
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