AL Circle Blog

Credit lines play a crucial role in managing risk and ensuring smooth transactions in trading. In this episode, we explore the complexities of credit lines and compare their use in over-the-counter (OTC) trading to the London Metal Exchange (LME) clear. Why Do You Need Two Credit Lines? In metals trading, two types of credit lines […]

Navigating the London Metal Exchange (LME) can be complex, especially when it comes to financing your trades. In this episode, we dive deep into credit lines, how they function, and why they are essential for effective trading. The Role of Brokers in Credit Lines A broker plays a crucial role in facilitating your LME transactions. […]

Previously, we introduced the concept of initial margin—the amount you deposit before entering a trade. In this blog, we take things further with variation margin and its impact on your trading positions. What is the Variation Margin? Once you place a trade, the market price fluctuates throughout the day. Let’s break this down with an […]

As we dive into another episode, let’s continue our discussion of futures trading – Initial Margin. Understanding margins is crucial for managing risk effectively, whether you’re trading long or short. Let’s break it down. What is the Initial Margin? When you enter a futures position whether buying (long) or selling (short) you must guarantee that […]

So far, we’ve covered borrowing and are now getting into lending. Remember this simple rule: you’re lending when you sell the nearby contract and buy the forward one. And when you buy the nearby and sell the forward, that’s borrowing. Example of Lending Let’s look at an example. Suppose I’m long in March, but I […]

As we dive into another week, let’s continue our discussion on carry trades. So far, we’ve explored the borrowing side in detail, but now it’s time to shine the spotlight on lending, the second integral part of this family. To recap, borrowing in carry trades involves buying a futures contract for the nearest date while […]

In our last discussion, we explored the concept of lending and walked through an example of selling March and buying April. This time, let’s dive into what happens when the market is in contango, a situation where prices for future contracts are higher than nearby prices. What is Contango? Simply put, contango occurs when the […]

So, what happens when you borrow in backwardation? Well, the rule is simple—you lose money. Why? Because in a backwardation curve, the nearby price is higher than the future price. That’s just how the market moves! Let’s break it down: If you borrow to postpone a short, say from April to May, April’s price is […]

In our previous discussion, we explored the concept of borrowing carry trades to anticipate long positions. Let’s dive deeper into how borrowing works in a contango market and why it often leads to profit. Borrowing and Long Positions in Contango Imagine this scenario: we’re holding a long position for April but need to shift it […]

In our last discussion, we explored how borrowing is used to postpone a short position, with an example of buying April and selling June. When the market was in contango, we earned profits, and during backwardation, the strategy still worked in our favor. But when the conditions were unfavorable, we faced losses. Today, let’s shift […]