✅ Why trade natural gas?

Natural gas is an interesting trade because regional factors tend to affect prices more than they do for most other commodities. This is because of the difficulties in transporting natural gas long distances. Because of this natural gas pricing can be quite volatile, and traders can expect large price moves on a regular basis. Of course this is considered a positive by day traders, who make their best profits from volatility. As natural gas becomes increasingly important to global energy needs, trading natural gas will also become an increasingly popular pastime.

✅ Is natural gas a better trade compared with crude oil?

Natural gas and crude oil are both energy commodities, yet they also have quite a few differences. Because both are energy commodities it is typical for the same companies that produce oil to also produce natural gas. Until the 21st century the price of natural gas and crude oil were highly correlated, but that changed with the discovery of huge natural gas reserves in the U.S. around the turn of the century. Because of this natural gas prices dropped, but overall they remain more stable over the long-term when compared with crude oil.

✅ What is the best strategy for trading natural gas?

The best trading strategy for natural gas takes into account the seasonality of the commodity, along with technical trading signals. Because natural gas is most used for heating and cooling the price tends to make the greatest moves in the winter and summer months. Suring the spring and autumn price is more likely to consolidate. Because of these seasonal trends it can be very effective to employ a breakout strategy to this market. With this type of strategy the trader looks for the beginning of an emerging trend, which can generate significant profits over the course of several weeks or even months.

Natural Gas Trading

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Natural Gas Trading

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What is natural gas and liquefied natural gas?

Natural gas is a by-product of fossil fuel formation, mainly decomposed organic matter, deposited into the earth over the past 550 million years. The reserves are deep in the ground near other hydrocarbons like coal and crude oil trading. Natural gas is treated and transformed into clean fuel to be used by various industries and products. Natural gas is a versatile fossil fuel used mainly for heating, cooking, transportation, generating heat and electricity.

Liquefied natural gas is a natural gas that has been liquefied for easy transport and storage. Natural gas is a major source of energy, however many places requiring it are far from the gas fields. It is therefore cooled and made into a liquid, with its volume size smaller, it is safer to store and ship overseas. The liquid is non-toxic and colorless. By cooling the gas the actual volume shrinks by 600 times. It will also not catch fire in this state.

Natural Gas Heaters and Natural Gas Power Plants

People now use natural gas heaters for many reasons which are both environmental and financial. These heaters/furnaces are not expensive to maintain; they do not break down often and use the cheapest and cleanest fossil fuel available. Natural gas heaters work well in any home.

Natural gas power plants and how it works: one large power plant can generate enough electricity for about 200,000 homes. The incredible thing is that even the fossil fuel it burns has large amounts of energy. These natural gas power plants burn huge amounts of fuel and every bit is full of power, which is released as heat, the heat spins a machine called a turbine, which powers a generator. Benefits include fewer impurities, less pollution, and with new technology cleaner energy production is being made and for far less expensive than other fuels.

Natural Gas Price

Various factors can affect the natural gas price which include:

The impact of seasonal weather including tropical storms and hurricanes.
Economic growth: The demand for this resource goes up in a strong economy, with this the price of natural gas goes up.
Crude oil price variances: If the price of crude oil goes up, the products produced in the refineries also goes up.
Natural gas supply: The reserves kept across the US have a big impact on the price. Reduction in US natural gas inventories signals upcoming mass purchase which drives the demand and the price of natural gas futures higher
Time spreads – when the traders bet on the upcoming season, it could be warmer or colder, creating a higher demand and the price of natural gas increases.

There are also different markets within the natural gas market. A spot market is when the prices represent the supply and demand that day. If there is a shortage, then the prices can become volatile and change rapidly. The futures market is determined mostly by variables on expected supply and demand of upcoming seasons. This tends to be less volatile.

Natural Gas Market

Exchange: NYMEX
Trading Hours: 22:00 – 20:59

Trading Conditions at AvaTrade:

Spread: Best in the market
Minimum Trade Size: 100
Margin: 2.00%
Increment: 0.001
Options: Monthly
MT4 Symbol: NATURAL_GAS

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Natural Gas Trading Main FAQs

What makes the price of cotton change?
Cotton prices are primarily driven by weather. Floods and droughts can have a significant impact on the price of this agricultural commodity. There are some other factors that can influence the price however, such as changing government regulations or the price of substitutes for cotton. For example, the price of cotton crashed in 2003 as polyester became the preferred material for many garments. The value of the U.S. dollar can also impact the price of cotton, and so can the price of oil since cheaper oil means cheaper polyester fabric.
Should I trade cotton?
As is the case for many commodities the price of cotton can be quite volatile. Rather than shying away from this volatility traders should embrace it. Increased volatility also gives traders an increased chance to make larger profits, especially when combined with the leverage available when trading cotton. Cotton is also a good way to speculate on global growth. As the world’s population grows, so does its need for cotton, but at the same time the amount of cotton grown can decrease as land is turned to growing food for the larger population.
How can I trade cotton?
AMost cotton is traded through futures contracts or options. These may not be the best trading vehicles for many retail traders however. A futures or options account is required, and the leverage on futures and options can be quite large. The initial investment for futures is also quite large. Both futures and options also suffer time decay, which must be accounted for in the trade. A better way to trade cotton is through CFDs, which allow for exposure to the market and speculation on the price change in cotton without any of the other concerns.