How to Start Trading Natural Gas CFDs
Natural Gas is an increasingly in-demand commodity that efficiently heats homes, runs power plants, and even mobilizes transportation vehicles. This has led more consumers to turn to Natural Gas over Oil, creating more trading opportunities.
Trading CFDs on Natural Gas Futures contracts allow you to trade on the delivery price of the commodity. Trading CFDs on Natural Gas producing companies or its transporters means that you can speculate on the price movement of a company’s stock, and decide whether you think the price will go up or down.
Some of the most popular ways to trade Natural Gas are:
- CFDs on Futures contracts- Allow you to trade on the delivery price of the commodity.
- Producers- Open a CFD position on the movement of companies who extract Natural Gas from their wells.
- Natural Gas Support Ecosystem- Trade CFDs on the share prices of companies who prospect, transport, and deliver Natural Gas from wells to consumers.
Traders who want to trade Natural Gas are aware of its seasonal price fluctuations and the strategies that can be implemented to trade this energy commodity. Read more to see what factors could affect the value of Natural Gas contracts.
What moves the price of natural gas?
Seasonality, cost of extraction, and industry demand all have an impact on the price of Natural Gas.
In the past, Natural Gas was expensive to liquify and transport, making it less practical than traditional Oil for international shipping or even rural usage in domestic markets. This kept Oil the main fuel source and limited Natural Gas to high-density domestic markets where piping infrastructure allowed for direct delivery to consumers.
The United States is by far the world's largest producer of Natural Gas with wells extracting 9.8 Billion cubic feet of gas per day (Bcf/d). In order to unify the market into a tradable commodity, a single price for the commodity is based off of the Henry Hub in Erath, Louisiana, USA. This location acts as the key benchmark for this energy source as a result of the Henry Hub’s size, storage ability, geographical location, and export capacity.
- Weather- While Natural Gas is produced year-round, its consumption in the US spikes over the winter, as it is a common fuel used to heat homes during the colder months. This is called “Withdrawal Season”, named for when usage is higher than production and a drop in reserves causes the price to increase. Summer, known as “Injection Season” is when consumption drops and reserves are filled again.
- Supply/Demand- Beyond home heating, Natural Gas is also used to run power plants and more. With more Natural-Gas fueled plants coming online globally, it raises the commodity’s demand and with it, the price.
- Competition- Wind, solar, oil, and other energy sources compete with Natural Gas for the fuel market share, which also affects the price.
Natural Gas trading strategies
Similar to other commodities such as Oil, Gold, or Wheat, Natural Gas is traded using Futures Contracts. These contracts help producers to better control revenue and suppliers to better control costs by agreeing to a purchase price, to be paid at a later delivery date.
These contracts are traded on the Chicago Mercantile Exchange, the US’s largest commodity exchange.
The Plus500 platform offers CFD trading on Natural Gas futures contracts and Natural Gas Options* CFDs.
To trade either a futures contract or an Option* CFD, Plus500 traders can open a Buy or Sell position on available contracts.
For example, if a trader believes that a contract is undervalued, they can open a Buy position, known as “going long”, and profit off the difference between the contract value from the time of opening against the time of closing the position. However, if they open a Buy position and it closes at a lower value, the position will close at a loss.
On the other hand, if a trader believes that the contract is overvalued, they can open a Sell position, known as “going short” and profit off the difference between the opening price and a lower closing price. If however, the price rises, the position will close at a loss.
Natural Gas trading hours
Natural Gas benchmarks are determined by the Natural Gas sold out of the Henry Hub in Louisiana, USA. The commodity is then traded through contracts at the Chicago Mercantile Exchange (CME).
This commodity is traded Sunday through Friday for 23 hours a day. There is a 60 minute break daily beginning at 5:00 PM EST (New York).
Natural Gas glossary
MMBTU- One Million British Thermal Units. This is the term used to measure tradeable Natural Gas volume.
Withdrawal Season- Colder months when consumption is higher and reserves are withdrawn from storage facilities. This season is from November through March in the Northern Hemisphere.
Injection Season- Warmer months when Natural Gas is less in demand and reserves are refilled. This season is from April through October in the Northern Hemisphere.
Basis- Price difference between two delivery locations. Basis points may be higher or lower than the traded price but always based off of the Henry Hub in Louisiana, USA.
Mid-Stream lines- Low capacity pipelines that deliver gas from production sites to major transport centers.
Shippers- Natural Gas distributors who fulfill needs in local markets.
Associated wells- Extract Oil with Natural Gas extracted as a bi-product.
Non-associated wells- Extract primarily Natural Gas.
Bcf/d- Billions of cubic feet per day.
Natural Gas’ trader appeal
The hyper development of the Natural Gas industry since the introduction of Fracking in 2006 has presented CFD traders with trading opportunities on the share price of Natural Gas produces, transporting companies, and Futures contracts.
Inherent seasonal fluctuations and a relatively new global infrastructure has made this fuel source a growing favourite amongst traders.
While it is not as old of a market as Oil, traders are finding new opportunities in Natural Gas’ global demand and popularity. As global trade of this energy commodity increases and shipping becomes more efficient, there is reason to believe that volatility will continue into the near future.
*Instrument availability varies by operator.