understanding Lead and Nickel: From Ancient Rome to Modern Trading Markets

Lead – some history, some basics.

Would it surprise you to learn that ‘Lead’, rather than precious metals or gems, was responsible for the fall of the Roman Empire? This metal is found in abundance and yet it has a place of importance in the history books. Impressive, isn’t it?

Don’t worry; I’m not going to turn this into a history lecture! The Roman Empire and lead actually have something of a connection, though, and I would love to tell you about it.

I don’t intend to take too much of your time – here is an interesting perspective of how lead could have acted as a catalyst to the fall of the mighty Roman Empire.

The characteristics of Lead make it a unique metal –

o   It’s a lustrous heavy metal.

o   Highly malleable and ductile

o   Poor conductor of electricity

o   Quite resistant to corrosion

o   Very dense

o   Reasonably available

Lead was found in prehistoric times, and it has been used for various purposes ever since. Its earliest application is evidenced by lead figurines discovered in Egypt that are estimated to be around 4,000 years old. Lead reached its peak usage during the Roman Empire when it was utilized in the making of water pipes, aqueducts, tank linings, cooking pots, and even cosmetics.

In fact here is a picture on a Roman-era water pipe –

It was a sign of prestige to have your own water pipes running into your home during the Roman era, boasting unique designs with the owner’s name inscribed on them. In the picture you can see evidence of this practice – customised water pipes were certainly all the rage in those days.

Romans eventually came to pay a hefty price for their persistent use of lead. Unfit for human consumption, its toxicity and carcinogenic properties proved fatal; many perished due to its presence in water pipes, especially the upper strata who held those deciding positions. This massive loss of life is speculated to have contributed to the ultimate downfall of Rome.

Altogether, that is the basic information I can offer on the subject. If you want to learn more, I recommend you take some time and conduct your own investigation. Here’s a helpful link to get you started.

Since the time of the Ancient Romans, humans have made advancements in the use of lead. There are now a plethora of applications for this versatile material; from construction to automotive parts and beyond.

o   Solders

o   The industrial lining of sinks, tanks, chambers

o   Protective shield against radiation

o   Lead-acid storage batteries (largest application of lead)

o   The lead foil used for covering cables

o   Pigments and compounds

o   Shipbuilding

Many people often associate “lead” with pencils; the tip of the pencil is not actually composed of lead, but instead is graphite.

Looking at the data, we can see that the supply-demand of lead has been relatively steady over the past few years.

Taking into consideration the long-term chart of lead, it is noticeable that the cost has stayed relatively flat in recent years. Examining the past few years demonstrates this tendency.

If you plan on trading Lead futures on MCX, then focus more on price action than news or fundamentals. I advise against setting up trades based solely on news or fundamentals.

If you intend on conducting trades based on fundamentals, click here to get access to the fundamental data.

– Contract Specifications

Let’s assess the contract specifications of Lead and Lead Mini. The former is bigger in size compared to its counterpart, which is a mini variant listed on MCX along with many other commodities. Let’s start by examining the details of the larger Lead first, then move on to Lead Mini.

The specs are as below –

o   Price Quote – Per kilogram

o   Lot size – 5 metric tonnes (5000 kgs)

o   Tick size – Rs. 0.05

o   P&L per tick – Rs. 0.05 * 5,000 = Rs. 250/-

o   Expiry – Last day of the month

o   Delivery units – 10 MT

Here is the snap quote of the Lead contract expiring in Jan 2017 –

The price, as seen here, is Rs. 137.05 per Kg. Therefore the contract value would be –

Lot size * price

= 5,000 * 137.05

= Rs. 685,250/-

The NRML margin is as shown below –

As you can see, the NRML (for overnight positions) margin is Rs. 80,482/-and MIS (for intraday) margin is Rs. 40,241/-.

This makes it about 11.7% for NRML and about 5.9% for MIS, clearly one of the highest margin requirements in the commodities market.

And now for the Lead Mini contract –

o   Price Quote – Per kilogram

o   Lot size – 1 metric ton (1000 kgs)

o   Tick size – Rs. 0.05

o   P&L per tick – Rs. 0.05 * 1,000 = Rs. 50/-

o   Expiry –Last day of the month

o   Delivery units – 10 MT

Here is the snap quote of Lead Mini, expiring in Jan 2017 

The price, as seen here, is Rs.137.50 per Kg. The contract value, therefore, would be –

Lot size * price

= 1,000 * 137.50

= Rs. 137,500/-

The NRML margin is as shown below –

As you can see, the NRML margin is Rs. 16,442/-and MIS margin is Rs. 8,221/-.

The margin for Lead Mini is equal to that of Lead Big, though the financial outlay is reduced due to the smaller lot size. This amounts to 11.7% for NRML and 5.9% for MIS respectively.

 – Lead contract logic

MCX brings out fresh contracts each month, the latest one expiring on the last day of the 5th month. For instance, a May 2017 contract will be offered in January 2017 and conclude at the close of business in May 2017.

The January 2017 contract will expire on the last working day of that month, having been put in place five months before, in September 2016. The details are presented in the table below.

This design guarantees that there is always an up-to-date contract in place in the system.

Have a look at the table below –

The contract is commissioned 5 months before expiry which results in it attaining liquidity only in its last month – thus, trading the current month contract is the wisest move. Of course, when an asset has greater liquidity, the bid-ask spread is much tighter, leading to lesser impact costs when executing market orders. This could reduce potential losses.

 – Nickel basics

Nickel and its alloys are pervasive in our daily lives. From cookware to mobile phones, medical equipment, construction, electrical power production and even transportation – Nickel is often present in one way or another. The primary use of the element is the manufacture of stainless steel; roughly 65% of worldwide nickel production goes into the making of this metal.

Here is the ‘demand-supply’ situation of Nickel –

Nickel production has greatly exceeded demand, which likely explains the slump in Nickel prices over the course of the year.

When it comes to trading Nickel, my advice is the same: focus on the price instead of fundamentals.

– Contract Specifications of Nickel

No doubt, Nickel has two variants – the big contract and the Nickel Mini. Let me begin with the specs of the former before looking into its Mini version.

Nickel (big) specs are as below –

o   Price Quote – Per kilogram

o   Lot size – 250 Kgs

o   Tick size – Rs. 0.10

o   P&L per tick – Rs. 0.10 * 250 = Rs. 25/-

o   Expiry – Last day of the month

o   Delivery units – 3 MT

Here is the snap quote of Nickel, expiring in Jan 2017 –

The price as seen here is Rs. 685.50 per Kg. The contract value, therefore, would be –

Lot size * price

= 250 * 686.5

= Rs. 1,71,625/-

The NRML margin is as shown below –

As you can see, the NRML (for overnight positions) margin is Rs. 16,924/-and MIS (for intraday) margin is Rs. 8,462/-.

This makes it about 10% for NRML and about 5% for MIS.

And now for the Nickel Mini contract –

o   Price Quote – Per kilogram

o   Lot size – 100 kgs

o   Tick size – Rs. 0.10

o   P&L per tick – Rs. 0.10 * 100 = Rs. 10/-

o   Expiry – Last day of the month

o   Delivery units – 3 MT

Here is the snap quote of Nickel Mini, expiring in Jan 2017 –

The price as seen here is Rs. 686/- per Kg. The contract value, therefore, would be –

Lot size * price

= 100 * 686

= Rs. 68,600/-

The NRML margin is as shown below 

As is evident, the NRML (overnight) margin stands at Rs. 6,694/- while the MIS (intraday) margin is fixed at Rs. 3,347/-.

This agreement falls in line with the large contract, meaning that NRML will receive 10% and MIS only 5.0%.

Every month, Lead releases new contracts and I’d urge you to focus on trading the current month contracts, since these are the most liquid.