Aluminum Options & Futures

Futures Basics

Metal Futures

Buying (Going Long) Aluminum Futures to Profit from a Rise in Aluminum Prices

If you are bullish on aluminum, you can profit from a rise in aluminum price by taking up a long position in the aluminum futures market. You can do so by buying (going long) one or more aluminum futures contracts at a futures exchange.

Example: Long Aluminum Futures Trade

You decide to go long one near-month LME Aluminum Futures contract at the price of USD 1,470 per tonne. Since each LME Aluminum Futures contract represents 25 tonnes of aluminum, the value of the futures contract is USD 36,750. However, instead of paying the full value of the contract, you will only be required to deposit an initial margin of USD 4,375 to open the long futures position.

Assuming that a week later, the price of aluminum rises and correspondingly, the price of aluminum futures jumps to USD 1,617 per tonne. Each contract is now worth USD 40,425. So by selling your futures contract now, you can exit your long position in aluminum futures with a profit of USD 3,675.

Margin Requirements & Leverage

In the examples shown above, although aluminum prices have moved by only 10%, the ROI generated is 84%. This leverage is made possible by the relatively low margin (approximately 12%) required to control a large amount of aluminum represented by each contract.

Leverage is a double edged weapon. The above examples only depict positive scenarios whereby the market is favorable towards you. If the market turn against you, you will be required to top up your account to meet the margin requirements in order for your futures position to remain open.

Related Articles

• Aluminum Futures Basics
• Selling Aluminum Futures to Profit from a Fall in Aluminum Prices
• Aluminum Options Basics
• Aluminum Call Option Trading Basics
• Aluminum Put Option Trading Basics
• Hedging Against Rising Aluminum Prices with Aluminum Futures
• Hedging Against Falling Aluminum Prices with Aluminum Futures