Lead Futures Trading Strategy (Backtest And Example)
Last Updated on May 27, 2023
Lead futures offers an easy way to participate in the lead market, which is estimated to be worth over 30 billion dollars. Ever since humans discovered it long before 6500 BC, lead has been used for various purposes, including making sculptures, decorating houses, and since the industrial age, making batteries. Although not among the most popular metal commodity futures, lead futures are actively traded on various commodity exchanges. What is a lead futures strategy?
A lead futures strategy is a set of methodologies and techniques for trading lead futures contracts profitably. Lead futures are legally binding contracts to deliver or receive the specified quantity of lead on a future date, at a pre-agreed price. The contract trades on the CME Globex platform, and it is settled by the physical delivery of the specified quantity and quality of Lead. A lead futures strategy allows you to speculate on lead prices, diversify your portfolio into the lead market, and hedge against inflation or market exposure.
In this post, we answer some questions about the lead futures strategy, and we also provide you with a backtest.
What are Lead futures?
Lead futures are futures contracts with lead as the underlying asset. In other words, it is a legally binding agreement to receive or deliver the specified quantity of lead on a future date, at a pre-agreed price. The contract trades primarily on the CME Globex platform, and it is settled by the physical delivery of the specified quantity and quality of Lead.
Although not among the most actively traded metal futures contracts, lead contracts are quite popular, especially among industry stakeholders who use it to hedge their risk exposure in the market. But it is also traded by speculative traders seeking to profit from price fluctuations and experienced investors seeking to diversify their portfolios into the metal market or hedge against inflation.
Lead contracts are standardized in terms of quality, quantity, and date of delivery. But the contract can be traded without getting involved with the delivery process. If you just want to speculate on the lead price without getting involved in the delivery, you can close out your trades before expiry or roll over your trade to the next contract month.
What is a Lead futures strategy?
A lead futures strategy is a term used to describe the methods and procedures that can be used to profit from trading the lead contract. It covers fundamental and technical analyses for timing the lead futures market, position sizing, risk management, and other related topics.
To successfully trade the lead futures market, you will need a solid trading strategy that can provide you with precise entry and exit signals. Spread trading and cross-exchange arbitrage are both potential strategies to explore when trying to trade the lead futures market.
Lead futures strategy backtest
A backtest with strict trading rules, settings, statistics, and historical performance is coming soon.
What is the seasonality of Lead futures?
As in other financial markets, seasonality in lead futures refers to the tendency of lead futures prices to move in a fairly predictable manner during certain periods of the year, which can be months or seasons like winter and summer.
As can be seen from the chart below, lead futures tend to perform better during the autumn months of September, October, and November. The lead futures also showed a relatively strong performance during the month of December. However, it performs poorly during the months of January and June.
What moves the Lead — What affects the lead the most?
Here are some of the factors that move the lead market:
- Demand and supply: The price of lead is determined by market forces that take supply and demand into account. Changes in lead demand — 85 percent of which is for battery production — can affect lead prices. Lead is one of the metals quoted on the London Metals Exchange, which is responsible for determining the prices of futures contracts. These contracts effectively set the price, and the trading itself determines how the price varies over time.
- Cost of Extraction: The primary lead mineral is galena (PbS), which has an 86.6% lead content and is typically found in ore with zinc, silver, and copper. So, the cost of extracting it from the ore can affect prices. This is also determined by the nature of the application and the amount of work required to transform raw ingots into a product suitable for the finished application. This is because raw ingots must be melted down and refined to produce a lead-free product.
- The price of alternative technologies: Lithium-ion batteries last longer than lead-acid batteries. While experts in the industry believe that Lithium-ion batteries may replace lead batteries in the future, they are still very expensive.
How are Lead futures traded?
Lead futures contracts trade on the CME Group’s futures exchange and can be traded from any part of the world via the CME Globex electronic platform. The contract trades from Sundays to Fridays from 5:00 p.m. to 4:00 p.m. CT with a 60-minute break each day beginning at 4:00 p.m. CT.
There are monthly contracts listed for 12 consecutive months. One contract unit of lead is equivalent to 25 Metric Tons of Lead, and pricing is in US dollars and cents per Metric Ton. Settlement is by physical delivery method, and trading terminates on the 3rd last business day of the contract month.
How do you start trading Lead futures?
To trade the contract, you need a futures broker to grant you access to the exchanges where lead futures contracts are traded. The first step to start trading is registering with a futures broker, such as TradeStation, and funding your account.
Alternatively, if you want to speculate on price movements, you may trade the CFD of lead futures contracts via an online CFD broker, such as IG. With CFD, you can trade price fluctuations without worrying about contract expiry and asset delivery.
What is the Lead trading at?
Lead futures were trading at $2,348.5 per metric ton of lead as of December 7th, 2022. See the chart here on the CME platform chart or TradingView.
Since the price changes from time to time, the price quoted here may not be the price it’s trading when you are reading this post. Click on either of those links to get the real-time price on the CME platform or directly from TradingView.
What’s Lead futures hour?
Lead futures trade on the CME Globex electronic platform from Sundays to Fridays; the trading hours begin from 5:00 p.m. to 4:00 p.m. CT the next day. There is a one-hour break before the start of the next trading day.
Where can I find trading charts?
You can get the chart on any trading platform that offers chart services. If your platform does offer charts, you can subscribe to trading charts via a third-party platform, such as MultiCharts.
You can also use TradingView, which offers free access to charts of different instruments. But to connect to your broker, you must subscribe to the Pro services. You can also access the chart from the CME platform.
What are the trading symbols for Lead futures?
The trading symbol for Lead futures is LED. Other product codes for the contract are as follows:
- CME ClearPort: LED
- Clearing: LED
What is the specification for the Lead futures contract?
One contract unit of lead is equivalent to 25 Metric Tons of Lead. The price quotation is in U. S. Dollars and Cents per Metric Ton. The minimum price fluctuation is $0.50 per Metric Ton, which is equivalent to $12.50 per contract.
There are monthly contracts listed for 12 consecutive months. Settlement is by physical delivery method, and trading terminates on the 3rd last business day of the contract month.
Why should you start trading Lead futures?
There are many reasons to trade lead futures. These are some of them:
- You can use it to hedge against price changes if you are a lead producer
- You can use it to ensure a stable supply of lead if you run a lead-battery factory.
- You can use it to hedge against inflation since the commodity price rises with inflation
- As an investor, you can use it to diversify your investment portfolio
- As a trader, you can use it to speculate on lead prices and profit from the price fluctuations
What is the contract size?
A contract unit of lead futures is equivalent to 25 metric tons of lead. The total dollar worth of a contract depends on the current price of lead. As of the time of writing, the current lead price is $2,348.5, so the USD worth of a full contract unit would be 25 x $2,348.5 = $58,712.5.
What is the tick size?
The tick size of one full contract of lead futures is $12.5 per contract.
What is the minimum price fluctuation for Lead futures?
The minimum price fluctuation is $0.25 per ton.
Are there any ETFs?
ETFs are financial instruments that trade as shares on exchanges in the same way that stocks do. There are currently two exchange-traded funds (ETFs) that trade in lead futures:
- iPath Pure Beta Lead ETN (LEDD)
- iPath Bloomberg Lead Subindex T (LD)
What factors affect Lead prices?
These are some of the factors:
- The demand for lead from the construction industry
- The cost of extraction and refining lead
- The availability and cheapness of alternatives like lithium
- Health reports about the harmful effects of lead
- Political situations in major producing nations, such as China and Australia.
- The strength of the US dollar — a stronger US dollar can act as an incentive for producers to increase their output, which could lead to a supply surplus, pushing lead prices down.
What is the all-time high for Lead futures?
Based on the TradingView chart for lead futures (LED), the all-time high for the lead market is $2,565.00. It reached this level in February 2018.
What are the biggest risks in trading Lead futures?
The biggest risk is adverse price movement. Because it is a leveraged contract, losses are computed based on the size of the underlying contract rather than the amount of margin that was initially deposited. If you trade with a leverage of 20x, for instance, a 1% decline in price could result in a 20% loss in your account, and a 5% decline in price could result in a complete loss of your account.
There is only a moderate amount of liquidity available compared to gold and crude oil, which is yet another significant risk. Consequently, it may be difficult for you to find someone to take the opposite side of your trade when you want to get out of your position, which could increase the spread and may cause you some losses.
What is the settlement method?
What is the settlement procedure?
COMEX Zinc (ZNC) and Lead (LED) futures are settled by CME Group staff based on trading activity on CME Globex during the settlement period. The settlement period is 11:30:00 to 12:00:00 Eastern Time (ET).
On contract expiry, the final settlement is by the physical delivery of the specified quantity and quality of lead, which is supervised by the exchange.
What is the block minimum for Lead futures?
What is the difference between Lead futures and the CFD product for Lead?
Lead futures trade on regulated futures exchanges, while lead CFDs are just contracts between the trader and the online CFD broker to exchange the price difference in lead from when a trade is opened to when it is closed. In other words, with lead CFD, the trader is at the mercy of the broker.
However, while lead futures have expiry dates and may involve the delivery of physical lead, lead CFDs can be traded without such worries.
Which forex pair is the same as Lead futures
What are some important dates for this market?
Some important dates for the lead market include:
- The late 1860s when acid-storage battery production began in France
- 2008 when the worldwide production of lead exceeded eight million tonnes.
What is the highest lead has ever been — its all-time high?
According to the TradingView chart for the Lead futures (LED), the highest level lead futures has ever reached was $2,565.00. It reached this level in February 2018.
What is the lowest lead has ever been — its all-time low?
Based on the TradingView chart for lead futures (LED), the lowest level lead futures has ever reached was $1,600.00, which took place in November 2015.
Trading lead futures allow you to diversify your trading portfolio, hedge against inflation, and potentially make money through speculation. However, if you want to be successful in trading lead futures, you must ensure that you use the right lead futures strategy.