Natural Gas Trading Strategies for 2021: Have You Considered CFDs?


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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 53.00%-89.00% of retail investor accounts lose money when trading CFDs.

How Can I Trade in Natural Gas?

Traders can trade in natural gas several ways:

Method of InvestingComplexity Rating (1 = easy, 5=hard)Expiration Dates?Management Costs?Leverage?Regulated Exchange?
Natural Gas Futures5
Natural Gas Options5
Natural Gas ETFs2
Natural Gas Shares2
Natural Gas CFDs3

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. However, traders should be wary of leveraged ETFs since they reset each day.

This makes them only effective as day-trading instruments. The most popular non-levered natural gas ETFs include United States Natural Gas Fund and First Trust ISE-Revere Natural Gas Index Fund.

United States Natural Gas FundFirst Trust ISE-Revere Natural Gas Index FundS&P Oil & Gas Exploration & Production Select IndustryDow Jones U.S. Oil & Gas Index

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 PriceOverviewListingsFounded
BHP Billiton

logo
Anglo-Australian multinational mining, metals and natural gas company.London (LSE)
New York (NYSE)
Johannesburg (JSE)
Sydney (ASX)
1885
Antero Resource Corporation

logo
Natural gas and oil company based in Denver, CO.New York
(NYSE)
2002
Enterprise Products Partners

logo
Natural gas and oil pipeline company headquartered in Houston, TX.New York
(NYSE)
1968
Phillips 66

logo
Multinational energy company based in Houston.New York
(NYSE)
1917
Cheniere Energy

logo
Developer and operator of natural gas terminals.New York
(NYSE)
1983
Cabot

logo
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

logo
US company that acquires, explores and develops properties that produce oil, natural gas and natural gas liquids.New York
(NYSE)
1989
Sandridge Energy

logo
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

logo
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 and other ways to trade gas and other energy commodities.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. <b>Between 53.00%-89.00% of retail investor accounts lose money when trading CFDs.</b> You should consider whether you understand how CFDs work and 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:

  1. Bet on Clean Fossil Fuel Demand
  2. Inflation and Weak US Dollar Hedge
  3. 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:

  1. Global Demand
  2. Environmental Concerns
  3. 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:

  1. A global recession could weaken energy demand.
  2. Higher natural gas prices or lower costs for even greener sources of energy could lead consumers to substitute consumption.
  3. 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.

Natural Gas experts Patrick Pouyanne, CEO of Total SA

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

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