Risk Warning: Your Capital is at Risk.
In this guide to trading natural gas, we’ll explain how and where you can trade it with our list of regulated brokers in your country. We also discuss the reasons some traders like this popular commodity.
In a hurry? If you want to get started trading natural gas, here are platforms available in to consider:
Disclaimer: Availability subject to regulations.
Between 74-89% of retail investor accounts lose money when trading CFDs.
Contents
How Can I Trade in Natural Gas?
Traders can trade in natural gas several ways:
| Method of Investing | Complexity Rating (1 = easy, 5=hard) | Expiration Dates? | Management Costs? | Leverage? | Regulated Exchange? |
|---|---|---|---|---|---|
| Natural Gas Futures | 5 | ✅ | ❌ | ✅ | ✅ |
| Natural Gas Options | 5 | ✅ | ❌ | ✅ | ✅ |
| Natural Gas ETFs | 2 | ❌ | ✅ | ❌ | ✅ |
| Natural Gas Shares | 2 | ❌ | ❌ | ✅ | ✅ |
| Natural Gas CFDs | 3 | ❌ | ❌ | ✅ | ✅ |
Natural Gas Futures
The Chicago Mercantile Exchange (CME) offers a contract on natural gas futures. The contract is based on delivery at the Henry Hub in Louisiana, a location where multiple interstate and intrastate pipelines converge. The contract settles into 10,000 million British thermal units (mmBtu) of natural gas.
The contract trades globally on the CME Globex electronic trading platform and has a variety of expiration months.
Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions. At expiration, the contracts are physically settled by delivery of natural gas.
Trading in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.
Natural Gas Options on Futures
The CME offers an options contract on natural gas futures.
Options are also a derivative instrument that employ leverage to trade in commodities. As with futures, options have an expiration date. However, options also have a strike price, which is the price above which the option finishes in the money.
Options buyers pay a price known as a premium to purchase contracts. An options bet succeeds only if the price of natural gas futures rises above the strike price by an amount greater than the premium paid for the contract. Therefore, options traders must be right about the size and timing of the move in natural gas futures to profit from their trades.
Natural Gas ETFs
These financial instruments trade as shares on exchanges in the same way that stocks do.
There are several ETFs that trade in natural gas including some that make leveraged bets on the commodity. The most popular non-levered natural gas ETFs include United States Natural Gas Fund and First Trust ISE-Revere Natural Gas Index Fund.
Here is a quick list of popular natural gas ETFs:
- UNG – United States Natural Gas Fund
- UNL – United States 12 Month Natural Gas Fund LP
- FCG – First Trust ISE-Revere Natural Gas Index Fund
- BOIL – ProShares Ultra Bloomberg Natural Gas
- KOLD – ProShares UltraShort Bloomberg Natural Gas
- XOF – SPDR S&P Oil & Gas Exploration & Production ETF
- DIG – ProShares Ultra Oil & Gas
- PXE – Invesco Dynamic Energy Exploration & Production ETF
Natural Gas Stocks
There are many publicly traded companies that have various levels of exposure to natural gas prices. While trading shares in companies can be a leveraged way to gain exposure to natural gas prices, many of these companies have exposure to other products such as crude oil.
In addition, these shares can react to other factors such as regional demand for their products, competition, production costs and interest rates. Finally, factors such as company management and the overall stock market can also affect these stock prices:
| Current Price | Overview | Listings | Founded | |
|---|---|---|---|---|
BHP Billiton | Anglo-Australian multinational mining, metals and natural gas company. | London (LSE) New York (NYSE) Johannesburg (JSE) Sydney (ASX) | 1885 | |
Antero Resource Corporation | Natural gas and oil company based in Denver, CO. | New York (NYSE) | 2002 | |
Enterprise Products Partners | Natural gas and oil pipeline company headquartered in Houston, TX. | New York (NYSE) | 1968 | |
Phillips 66 | Multinational energy company based in Houston. | New York (NYSE) | 1917 | |
Cheniere Energy | Developer and operator of natural gas terminals. | New York (NYSE) | 1983 | |
Cabot | Independent oil and gas company engaged in shale exploration in the United States. The company also purchases natural gas for resale. | New York (NYSE) | 1989 | |
Chesapeake Energy | US company that acquires, explores and develops properties that produce oil, natural gas and natural gas liquids. | New York (NYSE) | 1989 | |
Sandridge Energy | US oil and gas company that explores and develops properties that produce oil, natural gas and natural gas liquids. | New York (NYSE) | 2006 | |
Stone Energy | Independent oil and gas company that explores for oil and natural gas in the Gulf of Mexico. | New York (NYSE) | 1993 |
Natural Gas CFDs
One way to trade in natural gas is through the use of Contracts for Difference (CFDs) derivative instrument.
CFDs allow traders to speculate on the price of natural gas and natural gas shares.
The value of a CFD is the difference between the price of natural gas (or shares) at the time of purchase and its current price.
Many regulated brokers worldwide offer CFDs on natural gas and natural gas shares. Customers deposit funds with the broker, which serve as margin.
The advantage of CFDs is that traders can have exposure to natural gas prices without having to purchase shares, ETFs, futures or options.
IMPORTANT: CFDs are not available in the USA due to local regulation, and regulated brokers do not accept US citizens or US residents as clients.
Where Can I Trade Natural Gas?
Start your research with reviews of these regulated brokers available in that offer CFDs, forex, options or other ways to trade gas and other energy commodities.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Reasons to Trade Natural Gas
Regional economic, political and regulatory factors matter to natural gas prices more so than to many other commodities.
With that in mind, traders might consider trading natural gas for the following reasons:
- Bet on Clean Fossil Fuel Demand
- Inflation and Weak US Dollar Hedge
- Opportune Trends
Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.
Bet on Clean Fossil Fuel Demand
Natural gas is considered a much more environmentally-friendly fuel than petroleum or coal. It burns cleaner and produces fewer carbon emissions.
In addition, natural gas is lighter than air. In the case of a leak, it will dissipate, which gives it a safety advantage over gasoline.
Inflation and Weak US Dollar Hedge
Trading in natural gas is a way to bet on a weak US dollar and higher inflation.
Natural gas is priced in US dollars, so the performance of the world’s largest economy can impact its price. The US Federal Reserve Bank has kept interest rates low and the US dollar weak for many years.
A weak dollar could stoke inflation concerns. Since there is a limited supply of natural gas, the price of the commodity could benefit from fears of inflation.
Opportune Trends
There are three specific trends that could boost natural gas prices in the years ahead:
- Global Demand
- Environmental Concerns
- Regulation
Global Demand
Developments in CNG have the potential to make natural gas more of an international commodity. As transportation of natural gas becomes more affordable and practical, demand for the commodity could surge.
Environmental Concerns
Some fossil fuels such as coal are receiving intense scrutiny because of the pollution they create. These concerns make greener energy sources such as natural gas more attractive.
Regulation
Fossil fuels such as coal and crude oil produce harmful and toxic carbon emissions. China is regulating the production of dirty fuels and replacing coal-fired plants with natural gas and wind.
Reasons Not to Trade in Natural Gas
Traders should also consider the risks of trading in natural gas:
- A global recession could weaken energy demand.
- Higher natural gas prices or lower costs for even greener sources of energy could lead consumers to substitute consumption.
- Global economic or political turmoil could strengthen the US dollar and weaken demand for commodities.
Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.
What Do Experts Think About Natural Gas?
Many energy companies see natural gas as a key driver of their future growth.
Patrick Pouyanne, CEO of Total SA
“Natural Gas is flexible enough to offer the right combination with renewables…we are positioning Total more and more in gas, and in 35 years Total will distribute more oil than gas.”
Patrick Pouyanne, CEO of Total SA
ExxonMobil
The largest oil and gas company in the United States and fifth largest in the world agrees with this assessment:
“Natural gas is a major game changer with fewer emissions, flexibility and abundance.”
Dan Chung, Fred Alger Management
One leading analyst believes that increased US production of natural gas from shale and declining demand will produce lower prices in the future:
“Natural-gas prices are very low and have been for a while. It’s also a by-product of the shale revolution in the U.S. Natural gas is what powers most of our electricity needs, right? And that combined with renewables is another important trend that will affect energy prices globally. So we also have a negative long-term view.”
Dan Chung, Fred Alger Management
Further Reading
- Learn About Natural Gas As a Commodity
- Learn to Trade Energy Commodities
- Find a Commodities Broker
- Learn About Crude Oil
- US States That Consume The Most Natural Gas
- States With the Highest Natural Gas Prices
- The Highest Paying Jobs in the Oil & Gas Industry
