Market participants are becoming intrigued with the recent success of the COMEX Aluminum futures contract. Robust on-screen liquidity, increased volume, and increasing open interest are making it increasingly difficult for the trading community to ignore the contract.
As more attention is drawn towards COMEX Aluminum futures, some misconceptions about the contract must be clarified.
Misconception #1: COMEX Aluminum futures is a regional duty-paid contract.
Clarification: The physically deliverable COMEX Aluminum futures contract is a duty-unpaid contract, with global delivery points.
In July 2019, COMEX globalized the Aluminum futures contract (ALI) by expanding its warehousing network to include delivery points in North America, EMEA, and APAC. As of August 2021, warehouses are in nine different locations with a total of 16 approved warehouses.
The contract is duty-unpaid; however, duty-paid metal may also be delivered against the contract.
Current warehouse locations (as of August 2021):
COMEX Aluminum futures are quoted in USD per metric ton ($/MT).
This is a common misconception as COMEX ALI differs from the legacy COMEX Copper futures contract, which is quoted in USD per pound ($/LB) and is a duty-paid contract with warehouse locations only in North America.
Misconception #2: The market will not benefit from another Aluminum futures contract.
Clarification: As COMEX Aluminum specifications widely match those of competing exchanges, pricing in the market will also closely correlate with other international reference prices. However, the correlation is not perfect, opening arbitrage opportunities and relative value trades between instruments listed on different exchanges and delivered in different locations. Other commodity markets have greatly benefited from having liquid futures contracts listed at various exchanges.
Misconception #3: Liquidity is insufficient to trade.
Clarification: On-screen liquidity is robust, deep, and transparent.
Trading in COMEX Aluminum futures is available on-screen through Globex or through the brokered block market and cleared via CME Clearport, giving participants multiple venues at which to execute trades.
The ability to execute and on-screen transparency are reflected through increased average daily volume (ADV) and open interest (OI) which has reached yearly high levels in August 2021.
Misconception #4: Liquidity seems to change at random times during the month.
Clarification: Liquidity in the ALI contract transitions with predictability.
The COMEX Aluminum active month, or lead month, is the anchor month for settlements and will be the third chronological month. However, on the fifteenth of the current calendar month, the lead month becomes the fourth chronological month and remains the fourth chronological month until expiry of the current calendar month.
|On and between these dates in 2021…||…the active/lead contract month is…|
|Jan 4-Jan 14||Mar-21|
|Jan 15-Feb 12||Apr-21|
|Feb 16-Mar 12||May-21|
|Mar 15-Apr 14||Jun-21|
|Apr 15-May 14||Jul-21|
|May 17-June 14||Aug-21|
|June 15-July 14||Sep-21|
|July 15-Aug 13||Oct-21|
|Aug 16-Sept 14||Nov-21|
|Sept 15-Oct 14||Dec-21|
|Oct 15-Nov 12||Jan-22|
|Nov 15-Dec 14||Feb-22|
|Dec 15-Jan 14 '22||Mar-22|
On-screen depth and liquidity on spreads to active contract allow participants the ability to roll positions forward when necessary.
Misconception #5: Position limits will restrict implementing trading strategies.
Clarification: Strict position limits in COMEX Aluminum futures only apply to the spot month.
Position limits in COMEX Aluminum futures are categorized as spot month position limits and position accountability levels.
Spot month position limits in COMEX Aluminum futures are levels which a market participant may not exceed unless they have an approved exemption. Any positions in excess of these limits would be considered a rule violation pursuant to Rule 562.
Position accountability levels are levels which a market participant may exceed and not be in violation of an Exchange rule. A market participant who exceeds an accountability level may be asked by the Market Regulation Department to provide information relating to the position including, but not limited to, the nature and size of the position, the trading strategy employed with respect to the position, and hedging information (if applicable). Failure to supply the requested information may result in an order to reduce such positions, in addition to disciplinary action.
Misunderstood information can deter entry into a market, however, demystifying the misconceptions allows for confident participation. Increasing volume, growing open interest, multiple venues for execution with deep and transparent markets, and a global warehousing network with rules in place to limit the possibility of queues make COMEX Aluminum futures a viable, tradable futures contract.
|Contract Size||25 metric tons|
|Price Quotation||US dollars and cents per metric ton|
|Minimum Price Fluctuation||$0.25 per metric ton|
|Contract Listings||60 consecutive months|
|Trading Hours||6:00 p.m. ‒ 5:00 p.m. New York time/Eastern Time, Sunday-Friday|
|Termination of Trading||Third last business day of the contract month|
|Settlement Procedures||Settlement Procedures|
|Position Limits||COMEX Position Limits|
|Delivery Period||Delivery may take place on any business day beginning on the first business day of the delivery month or any subsequent business day of the delivery month, but not later than the last business day of the current delivery month.|
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