Natural gas exchange-traded funds (ETFs) allow investors to gain exposure to natural gas prices without the complexities of trading natural gas futures contracts or the storage expenses associated with holding real commodities. Natural gas is a commodity that is used for heating, cooking, fuel, and generating electricity. It’s also employed in the production of polymers and organic compounds. Natural gas prices rise and fall in response to supply and demand swings.
What is the best way to trade natural gas?
Natural gas can be traded in a few different ways. Futures, options, and stocks and ETFs are the most popular.
When you trade natural gas with us, you’ll be speculating on the market price of futures, stocks, and ETFs utilizing derivatives. Instead of taking ownership of the underlying asset, you’ll be betting on whether the market price will climb or fall. The extent to which the market moves in your favor or against you will determine your profit or loss.
Do you want to buy or sell natural gas? Open an account right now, or try a risk-free demo first.
Natural gas futures
Natural gas futures are agreements between two parties to exchange a specific amount of natural gas at a specific price on a specific date in the future. The trader would either receive physical delivery of natural gas or settle their position in cash at the point of expiry.
They would be able to buy natural gas at a lesser price if prices rose above the agreed-upon level, but they would have to pay a higher price if prices decreased. The idea is that businesses and investors may lock in a price ahead of time, thereby hedging against market fluctuations that could hurt them.
The Henry Hub in Louisiana, where various US pipelines meet, is where natural gas futures are based on delivery. The natural gas contracts are valued 10,000 million British thermal units (MMBtu). Most other derivatives are based on natural gas futures.
Natural gas options
Natural gas options, like futures, allow traders to buy or sell natural gas at a predetermined price on a predetermined expiration date. Options holders, unlike futures investors, can choose whether or not to execute their contract when it expires.
Calls and puts are the two forms of contracts. If you felt the price of natural gas would climb, you’d buy a call option, and if you thought it would fall, you’d buy a put option. The option is in the money and can be executed for a profit if the price of natural gas rises over the fixed price – known as the strike price.
Natural gas stocks
Natural gas stocks are shares in firms that operate in the sector. Natural gas transportation necessitates the use of a pipeline, hence infrastructure businesses are among the most popular natural gas stocks. Exporters and producers are two other major stakeholders.
BHP Billiton, Antero Resource Corp, and Enterprise Products Partners are examples of well-known natural gas stocks. It’s worth noting that many ‘natural gas stocks’ will likely expose you to other energy sources as well, such as crude oil. This necessitates a thorough understanding of each company’s operations and the elements that will influence its stock price.
Natural gas ETFs
Natural gas exchange-traded funds (ETFs) are financial vehicles that allow traders to gain exposure to a diversified portfolio of assets from a single position. ETFs that contain natural gas futures or shares of companies involved in the industry are available to trade.
- WisdomTree Natural Gas 2x Daily Leveraged is a hedge fund that tracks the Bloomberg Natural Gas SL index to replicate 200 percent of daily changes in natural gas futures contracts.
- iShares STOXX Europe 600 Oil & Gas (DE), which invests in physical index assets to closely match the performance of the STOXX Europe 600 Oil & Gas Index.
- The SPDR S&P Oil & Gas Exploration & Production ETF attempts to match the total return performance of the S&P Oil & Gas Exploration & Production Select Industry Index.
What is the best way to trade natural gas prices?
The use of Contracts for Difference (CFDs) derivative instruments is one technique to trade natural gas. Traders can speculate on the price of natural gas and natural gas stocks using CFDs.
How do I go about investing in natural gas?
ETFs, futures, and stocks are all options for investing in natural gas. Natural gas investors have a variety of options for gaining exposure to the fuel. One option is to invest in exchange-traded funds (ETFs), as well as to acquire a futures contract or to invest in natural gas stocks on an exchange.
What ETF follows the price of oil?
Oil exchange-traded funds (ETFs) follow the price of oil as a commodity and provide direct access to the market. Investing in funds that possess a portfolio of oil stocks is not the same as this strategy. Investing in the oil sector has the potential to yield substantial gains, but the dangers remain high due to the COVID-19 epidemic and the resulting massive economic disruption around the world.
Oil prices have a history of making fast, dramatic swings up and down. Oil ETFs allow investors to acquire exposure to price movements without having to buy and store real commodities or deal with the complexity of investing in oil futures contracts.
What is the best way to trade natural gas futures?
A futures contract, such as the CME’s Henry Hub natural gas futures contract, is the most frequent vehicle for traders to take a position on natural gas. With a futures contract, traders agree to supply a specific amount of natural gas at a predetermined price at a future date. This does, however, imply that the trader may have to accept delivery of the asset at some point.
What is the best place to trade natural gas futures?
A natural gas futures contract, according to Investopedia, contains ten specifications:
- On the New York Mercantile Exchange (NYMEX), the ticker symbol is NG; on the computerized Chicago Board of Trade, the ticker symbol is ENG (eCBOT)
- Grades of deliverables are determined by current pipeline standards at the time of delivery.
- Trading Hours: The NYMEX is open from 9 a.m. to 2:30 p.m. EST, while the eCBOT is open from 6 p.m. to 5:15 p.m. CST.
- Last Trading Day: Trading closes three business days before the delivery month’s first calendar day.
- Tick Size: The smallest upward or downward movement a stock or future can make is called a “tick.” It is $0.01 per million BTUs for natural gas futures.
- Daily Price Limit: $3 per million BTUs (not applicable in electronic markets); contracts may grow by $3 in either direction if exchanged, bid, or offered. Trading is paused for five minutes if any contract is exchanged, bid, or offered at the $3 limit for five minutes.
How Are Natural Gas Futures Traded?
Natural gas futures contracts can be traded on the New York Mercantile Exchange (NYMEX), the Intercontinental Exchange (ICE), or the Multi Commodity Exchange (MCX) (MCX). The NYMEX is the US commodity benchmark, whereas the ICE and MCX are headquartered in the United Kingdom and India, respectively.
Natural gas, like all other commodities, has its own ticker and contract value. These elements assist you in determining the greatest trading and selling opportunities.
Delivery Codes for Natural Gas Futures
The following is a list of letter codes that are used in ticker quotes to indicate the delivery month:
The symbol “NG” indicates that the commodity being traded is natural gas. The letter ” K ” stands for May, the month in which natural gas must be delivered, and the number ” 15 ” stands for the year. The ” 2.76 ” represents the price per million BTUs purchased or sold at the moment.
As a result, the entire string reads: “I am buying/selling natural gas for delivery in May 2015 at a price of $2.76 per one million British thermal units.”
Now we must determine the contract value, which decides how much your natural gas is worth on the open market…
A futures contract’s value is determined by multiplying the current market price by the contract’s size. Because a futures contract is 10,000 million (10 billion) BTUs in size, the current price is simply multiplied by 10,000.
We may calculate the contract’s worth in the natural gas market at $27,600 if we stick to the above ticker’s price of $2.76.
How Have Natural Gas Futures Performed in 2015?
While the energy sector has had a difficult year, natural gas has been rather stable.
In 2015, gas futures have dropped by around 5.4 percent. WTI and Brent crude oil, on the other hand, have fallen 12.8 percent and 7.3 percent, respectively (as of March 24).
Because they are linked to the world’s most valuable energy commodity, oil futures are more volatile. They’re subject to a variety of geopolitical circumstances that can cause price drops at any time.
The decision by OPEC to sustain production in November 2014 is one example. Oil prices plummeted below $70 per barrel on the same day, a level not seen in over four years.
Natural gas prices, on the other hand, have remained relatively constant. Because natural gas is more difficult to transfer internationally, trading is more localized.
During the cold winter months, natural gas futures usually perform strongly. When subzero conditions blanketed most of the Eastern United States in January and February, prices soared above $3.
Is it possible to buy natural gas futures?
- Trading shares and futures electronically rather than physically is what day trading natural gas entails.
- This sort of trading entails gambling on modest price variations in the natural gas futures market.
- These trades don’t reflect the “actual” price of natural gas, but rather daily, minute-by-minute supply and demand swings on the global commodities market.
- Natural gas futures can be traded directly on futures markets or through exchange-traded funds (ETFs) that trade on stock exchanges.
