A naturally occurring hydrocarbon, natural gas is one of the cheapest and cleanest fossil fuels. It's also one of the most popular among traders.
To open a position and get access to technical indicators and tools that will help you trade natural gas, open a live Tradu account today. We have all the latest charts and prices. You can also read on to discover how to trade natural gas.
Natural gas is a fossil fuel. This naturally occurring hydrocarbon is used to boil water, heat houses, and for a range of industrial applications.
Although it's widely used and considered to be one of the cleanest and cheapest fossil fuels, its gaseous state means it must be transported via pipelines. Alternatively, it can be transformed into a pressurised liquid state. So, while it's cheap to source this gas, the infrastructure needed to transport it can be expensive.
As of 2021, natural gas is the third most used form of energy to generate power. It represents around a quarter (24%) of globally generated power and is a go-to source across a range of settings. Natural gas is also the third largest physical commodity futures contract in the world. It's one of the more popular commodities among traders due to its prevalence. There's a lot of trading volume, making opening and closing positions easy and the market liquid, so the spreads are typically lower. However, it's also a volatile market, making it both challenging and high-risk. Please note you cannot trade futures or options with Tradu; their inclusion here is for informational purposes only.
Henry Hub natural gas futures are the benchmark, and this is based where several pipelines meet in Louisiana. This forms the official delivery location for futures contracts. They are traded on the Chicago Mercantile Exchange Group (CME Group) and the New York Mercantile Exchange (NYMEX).
Natural gas futures are the basis for most derivatives. When you trade natural gas with Tradu, you'll be using derivative products to make your trades. With our platform, you can track the price of this popular commodity.
Should you want to know where and how to trade European natural gas, you must know what a hub is. The hub is used as a central pricing point for the network's natural gas. Here, natural gas is priced on a supply-and-demand basis, rather than being indexed to crude oil.
In some cases, a financial derivative contract is priced off gas delivered at the hub. There are some areas within Europe, such as around the Mediterranean, that maintain oil indexation for gas trading. However, in northwest Europe, hub pricing leads the way.
You'll find that there are different trading hubs to choose from. The Central European Gas Hub (CEGH), located in Vienna (Austria), is the main hub for trading gas between East and West. The Dutch Title Transfer Facility (TTF) and Britain's National Balancing Point (NBP) are the most liquid and transparent of the hubs.
There are different ways to trade natural gas. As with other commodities, it's possible to take up natural gas trading by using derivatives to track the value and speculate on the future price.
To find out more about the different natural gas commodity trading options that are available, as well as how to use CFDs, read on. Please note you cannot trade futures or options with Tradu; their inclusion here is for informational purposes only.
Options contracts give traders the chance to buy or sell at a set price. However, there is no obligation to do this. There is limited risk because there is no obligation, making this type of natural gas trading appealing to buyers. If you are selling, however, the risk is greater. Therefore, if you want to buy natural gas as a commodity, it is a trading method that still requires planning.
With futures contracts, you buy or sell a contract that will be settled for a set price on a specified date. While they share similarities with options, there is an obligation to carry out the trade with these contracts.
CFDs are other ways of adding natural gas trading to your portfolio. They offer the chance to speculate on the future market price and trade natural gas.
CFDs are classed as derivatives and can be used to go long or short, depending on whether you believe the price will rise or fall. As you are only speculating on price movements, you won't own the underlying asset.
With CFDs , you agree to exchange the difference in price from the opening of the contract and when it is closed. If the price moves as you predict, you make a profit. If it moves in the opposite direction, you make a loss.
With CFDs, leverage can be used. Leverage provides the exposure of a larger position with only a fraction of the deposit required. This gives traders you opportunity to increase profits, but it can also cause greater losses.
Natural gas is traded on the stock markets. Shareholders with natural gas stocks can choose to invest in a range of companies that are related to the industry, including exploration, production, and transportation companies. Examples of well-known natural gas stocks include BHP Billiton, Enterprise Products Partners, and Antero Resource Corp.
You might decide to trade in real stocks, where you buy shares in a company related to the natural gas industry rather than using derivatives. Or you might decide to expand your portfolio by investing in both CFDs and shares. However, trading stocks is considered to be a longer-term option.
Once you've chosen which instrument to use, you'll need to choose a strategy that helps you navigate the level of risk involved. Several strategies can be applied to natural gas commodity trading. These tend to use fundamental and technical analysis as the basis.
Trend trading is a day trading strategy. It follows the trends in the market to decide when to buy or sell. If there's an upward trend on the chart, traders buy natural gas. If there's a downward trend, they sell. This is all based on the trend continuing.
You can read more about trend trading in our guide.
Breakout strategies crop up in other types of trading. Here, traders analyse natural gas price charts using the support and resistance lines to spot where there might be an opportunity to capitalise before the price returns to its typical range.
Read our guide to commodity trading strategies to learn more.
As with other commodities, natural gas trading prices are affected by several factors:
If you're looking for the best time to trade natural gas, here are the trading hours to be aware of:
With natural gas commodity trading, there are advantages and disadvantages that require consideration before you dive into the market. Some of these include:
Looking to take the plunge and start trading? You can do so in just a few simple steps with Tradu.
Discover more with our commodities resources: