Monthly Average Futures

Hedge against the monthly average, in one simple trade

Monthly Average Futures (formerly LMEswaps) are designed specifically for members of the metal community who need to hedge against the monthly average price. They are the first of their type in the world to be traded on-exchange and available for all LME non-ferrous metals.

Tradable on LMEselect and the 24-hour telephone market, Monthly Average Futures (MAFs) enable participants to enter into a fixed price and settle the difference against the floating price (the Monthly Average Settlement Price or MASP) at the end of the averaging period – all in one simple trade.

We recently added (see Member Notice 17:213) second business day prompt dates to the parent contracts to extend MAF and LME futures pairs trading from three months out, up to two years out.

What is a Monthly Average Future?

A Monthly Average Future is an on-exchange contract between two parties where the cash difference between the agreed fixed price and the floating Monthly Average Settlement Price (MASP) is financially settled at the end of the averaging period.

The contracts provide the same economic benefit of a standard ‘swap’ where two parties agree to swap a fixed known price for a floating variable price over an agreed period. In the case of Monthly Average Futures, the fixed price is financially settled for difference against the floating average price.

Monthly Average Futures are tradeable for all LME non-ferrous metals and margined basis the Notional Average Price (NAP) and settled basis the MASP on the last trading day of the averaging month.

Payment of profits and losses on the difference between the fixed price and the MASP will be made on the second valid business day of the month. A Monthly Average Future does not have to be ‘closed out’ like a futures contract and there is no possibility of physical delivery.

How Monthly Average Futures work - an example

  • Party who wishes to buy at fixed price asks for Monthly Average Futures quote for March 2012 
  • Monthly Average Futures quote is $2000 - 2010 per mt
  • Party agrees to buy at the fixed price of $2,010 per mt and settle this financially at the Monthly Average Settlement Price (MASP) of the last business day of March
  • If the MASP settles higher than $2,010, the party receives the difference. If the MASP settles lower than $2,010 the party pays the difference.

The LME is a wholesale market offering products designed for institutional investors and for those wishing to hedge their exposure to fluctuations in metals prices. The LME is subject to the obligations of the Packaged Retail and Insurance-Based Investment Products Regulations and has prepared Key Information Documents in relation to its Futures and Options contracts.