Natural Gas Futures are contracts that represent the price of a physical quantity of natural gas at a specific time in the future. The underlying market is driven by weather patterns, global tensions and supply/demand dynamics.
The Henry Hub pipeline located in Erath, Louisiana is the pricing benchmark and all NYMEX Division Natural Gas trades are based on the price at this point. Traders who take up trading Natural Gas CFDs will see how prices can move in line with forecasts.
The Futures Market
Natural gas is an essential energy source that generates electricity, heats homes and fuels vehicles. Its demand peaks with winter heating and summer air conditioning needs. As a result, prices for this commodity are often highly volatile and can present opportunities to trade both buy and sell.
The NYMEX Division natural gas futures contract is widely used as a national benchmark price and is traded in units of 10,000 million British thermal units (mmBtu). It is priced based on delivery at the Henry Hub in Louisiana, which is the nexus of 16 intra- and interstate natural gas pipeline systems that draw supplies from the area’s prolific gas deposits. Natural gas is used by a wide range of traders and companies, from producers to consumers.
Like other commodities, the price of natural gas is determined by supply and demand factors. For example, if more natural gas is in storage than there is demand, the price will decrease. Conversely, if there is more demand than supply, the price will rise. To manage risk, traders use a variety of tools including daily settlements and weekly storage data.
In addition to trading in futures contracts, you can also speculate on the volatility of natural gas with CFDs (contracts for difference). At Plus500, we offer our traders the opportunity to trade IG’s market-leading Henry Hub CFD. Each CFD represents a tradable unit of 10,000 MMBTU.
A contract for difference is an agreement between two parties to exchange a fixed amount of a commodity in the future, at a specified date and location, for a variable price, with no actual physical delivery. You can trade these speculative instruments over 24 hours a day, 6 days a week. However, it’s important to remember that a margin requirement is required. This is a fixed sum of money that you must deposit into your account to hold the position, which will be used to cover any daily gains or losses. This process is known as daily marking to market. A minimum margin of $3 per contract is required. In addition, the spread on each CFD may be wider than that on a futures contract.
Margin Requirements
Natural gas is a vital source of energy used in powering industrial machinery, fueling cars, heating homes and much more. This clean-burning commodity also has significant market value that can be profitably traded in the financial markets. Natural gas futures contracts are most popularly traded on CME Group’s New York Mercantile Exchange (NYMEX) but can also be traded on other exchanges such as the Intercontinental Exchange (ICE). Both buyers and sellers of natural gas must post margin with their clearing firm/brokerage firm to mitigate credit risk. The amount of initial and maintenance margin required for a particular contract will vary depending on the specific commodity, and is set by the exchanges.
Margin is a percentage of the total value of the futures contract that is required to be deposited with the RFCM before a position can be opened. It is a form of insurance that protects the RFCM in case a trader is unable to close a position for any reason. Once a trade is closed, the margin is returned to the account holder.
Traders can use the information on this page to determine how much margin they will need for a particular futures contract. This will help them decide whether the commodity is an appropriate investment for their portfolio and trading strategy. Generally speaking, the lower the margin requirements are for a futures contract, the more leverage is available to the trader. This can work for you or against you as it magnifies your profits as well as your losses.
The price of natural gas is determined by supply and demand, as well as forecasts and expectations of traders based on current or future events. The underlying asset of the futures contract is the physical commodity itself, but traders can also trade CFDs on the price movement of the commodity without purchasing the actual underlying asset.
The price of natural gas is primarily determined by what happens at the Henry Hub in Louisiana, USA. The hub is the industry’s pricing benchmark and all futures contracts are based on prices at the hub. Some traders will sell short positions in the market, meaning they are expecting the price to fall, and then buy back those same positions at a later date. This strategy can lead to margin calls which can tie up capital and force traders to borrow funds from brokers or CCPs in order to cover their exposure.
Trading Hours
Natural gas is a commodity that is used to generate electricity and produce heat. It is also a vital source of fuel for many vehicles and industries. It is a fossil fuel that is trapped under the earth’s surface and is made from organic matter, including the remains of dead plants and animals.
As with other commodities, the market for natural gas is largely determined by weather conditions. A colder climate increases demand for heating, while a hot climate causes people to turn on air conditioning, both of which require more energy and thus increase the price of natural gas. Other factors that affect the price of natural gas include economic recessions, exchange rates and other energy alternatives.
A futures contract for natural gas is an agreement to buy or sell a standardized amount of the commodity at a specific price on a specified date in the future. It is a popular trading instrument for large speculators and for companies to hedge their exposure in the natural gas market. There are several ways to trade futures contracts for natural gas, including online trading and floor trading.
The futures market for natural gas is one of the most active and tradable commodities in the world. It is traded on the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE). A natural gas futures contract can be traded 24 hours a day, 6 days a week.
When you trade a futures contract, it is important to have a trading plan in place. This plan should include a risk management strategy, as well as your trading goals and timeframes. It is also important to stay informed about the natural gas market by following news and developments.
After you’ve developed a trading plan and analyzed the market, it’s time to open a trade. To do so, you’ll need to open a live trading account and select a natural gas futures contract from the list of available contracts. Once you’ve selected the contract, enter your order and click “buy” or “sell.” Your trade will then be opened.
Contracts
As a natural gas consumer or producer, you may wish to hedge your price risk by purchasing and selling futures contracts. These are standardized legal agreements to buy or sell commodities at a specified price in the future and are traded on exchanges such as NYMEX, Intercontinental Exchange (ICE), and Multi Commodity Exchange (MCX). The contracts are bought and sold by traders, who can turn a profit without ever interacting with the actual commodity itself.
The Henry Hub in Louisiana is the industry’s pricing benchmark and is where all futures contracts trade. Each contract is 10,000 Million British Thermal Units (mmBTU) in size. The price of a contract can fluctuate based on weekly storage and inventory reports, which are published by the Energy Information Administration. These reports can create volatility that is expected but can also be surprising, depending on the content.
Traders that buy and sell futures positions can be both hedgers and speculators. Hedgers are natural gas producers and consumers that use futures to manage their price risk, while speculators take the opposite side of the market and buy when they believe prices will rise and sell when they believe prices will fall.
Each futures contract has a ticker, which is the unique name that identifies it in the market. It will contain the underlying commodity, the delivery month and year, as well as the contract value. For example, the ticker for an August 2020 contract will have the format NGK15 @ 2.76. This means that the underlying asset is natural gas, the delivery month is August 2020, and the contract value is 2,76 cents per million BTUs.
It is important to remember that trading futures involves a financial commitment and can result in a loss. To mitigate this risk, the Futures Market sets what is known as Margin Requirements. These are the amount of money that is required to open a position. Margin requirements are different for each commodity, but are similar to margins in stock/equity trading. For more information on these, visit our Margin Requirements page. IG offers a convenient way to speculate on the price of futures contracts with CFDs. These are not futures contracts, but rather a contract for difference (CFD). With a CFD, you do not own the underlying asset but instead trade on the movement of the price of the contract.
Conclusion:
Natural gas futures trading can be a profitable endeavor for those who are able to understand and adapt to a changing market. This involves keeping up-to-date with industry news, understanding supply and demand factors, monitoring weather patterns, and utilizing technical analysis tools to identify trends and potential entry and exit points. Successful natural gas futures trading requires a solid trading plan, risk management strategies, and the ability to adjust to changing market conditions.
FAQs:
- What are some factors that can impact the natural gas market?
Factors that can impact the natural gas market include supply and demand factors, weather patterns, geopolitical events, economic data, storage levels, and regulatory changes.
- How can traders adapt to a changing natural gas market?
Traders can adapt to a changing natural gas market by keeping up-to-date with industry news and events, monitoring supply and demand factors, utilizing technical analysis tools to identify trends and potential entry and exit points, and adjusting their trading strategies to changing market conditions.
- How can traders manage risk when trading natural gas futures?
Traders can manage risk when trading natural gas futures by using risk management strategies such as stop-loss orders, position sizing, and diversification of trading strategies.
- What are some technical analysis tools used in natural gas futures trading?
Technical analysis tools used in natural gas futures trading can include chart patterns, trendlines, moving averages, and oscillators such as the relative strength index (RSI) and the stochastic oscillator.
- Are there any tax implications to trading natural gas futures?
Yes, there may be tax implications to trading natural gas futures. It is important to consult with a tax professional to understand the tax implications of your trading activity.
