Factors Upon The Trend Of Price Ratio Between SHFE And LME

With China's role in the global commodity trade become more and more important, Shanghai Future Exchanges' international influence is increasing dramatically. At present, its transaction volume about the Copper future contracts ranked the first globally. Furthermore, its transaction price has become an essential reference in the global trading which regards as a supplementary to LME's price.This paper focuses on the price ratio between SHFE and LME. Starting from the background of the two exchanges, we introduced the different background of the emergence and transaction rules about the copper future contract. We list a set of trading strategy adopted by the active market participants within SHFE and LME and explain the trading strategy of cross-market arbitrage in details. We identified that the core factor of this arbitrage trading is the price spread between the two markets and therefore further analysis is carried out accordingly.We use a simple method of mathematical statistics to examine the correlation with the price ratio from three aspects which is transaction currency, market demand and market supply. And then, explain the result with actual economic logics in order to come to a conclusion.This paper provides an enlightening framework upon the copper market's cross-market arbitrage trading strategy, especially between SHFE and LME. Through the analysis of price ratio's fluctuation in a relatively long term which is from the post financial crisis in 2007 to the recent 2014, a visual impression and intrinsic factors affected the price ratio has risen above the surface. We think this will definitely helpful for those cross-market arbitragers to some extent.