Natural gas is the cleanest burning fossil fuel and is economically cheap. It contributes about 25% of the United States’ energy use and nearly a third of world energy consumption. So, it is progressively playing a larger role in the energy industry, serving as a good alternative to other fossil fuels.

Natural gas is becoming increasingly important as it is a cleaner energy source than other fossil fuels. It is used in cooking, generating electricity, and producing industrial chemicals. Natural gas futures are offered on many commodity exchanges, such as the ICE, NYMEX, and TOCOM.

Initially thought of as a byproduct of oil production, natural gas is not only used in the energy industry but also used for other purposes. It has become a very important global commodity. Natural gas futures are one of the most actively traded energy futures, after crude oil, but it is also known for its high price volatility.

Natural Gas Futures Contract Specifications
Symbol
NG
Exchange
CME
Tick Size
$10
Contract Size
10,000 million British thermal units (mmBtu)
Contract Months
All months
Trading Hours
Sun - Fri 6:00 p.m - 5:00 p.m CT
Settlement
Deliverable
Last Trading Day
Trading ends on the 3rd last business days of the month before the contract month.

Uses of Natural Gas

Trading in natural gas futures emerged as a way to control the excessive volatility in the price of the commodity owing to its diverse uses, which includes the following:

Electricity generation: In many parts of the world, natural gas is used to generate electricity, as it offers a cheap and cleaner source of power than coal. In the US, it contributes more than 27 percent of the electricity generation.

Residential uses: Close to half of all homes in the US rely on natural gas to cook, boil water, dry clothes, and heat buildings. In fact, the residential sector accounts for about 16 percent of U.S. annual natural gas demands.

Transportation: Natural gas is becoming increasingly important in the transportation sector. As of 2010, there are more than 12,7 million vehicles in the world that are powered with natural gas.

Industrial uses: Natural gas is heavily used in the industries for generating heat and producing important chemicals, such as fertilizers and hydrogen. In fact, the industrial sector accounts for 34 percent of U.S. natural gas demand each year.

Commercial uses: The commodity is used to provide outdoor lighting, operate cooling equipment, and heat buildings and water.

The Largest Producers and Consumers of Natural Gas

Many countries have natural gas deposits, which are usually extracted through wells. In the US and a few other countries, natural gas is also produced from shale and other types of sedimentary rocks. The largest producer of natural gas in the world is the US, followed by Russia and Iran. Other top producers include Qatar, Canada, China, the EU, Norway, Saudi Arabia, and Turkmenistan.

The countries with the most natural gas deposits are Russia, Iran, Qatar, the US, and Saudi Arabia. Top consumers include Germany, the US, Mexico, Russia, China, the UK, Iran, United Arab Emirates, Japan, and Canada.

Why Trade Natural Gas Futures Contracts

Why Trade Natural Gas Futures?

Why Trade Natural Gas Futures?

There are many reasons to play the natural gas futures market. Speculation is one of them for sure, but inflation hedge and portfolio diversification are also other reasons to trade the market. For the main stakeholders in the natural gas production-utilization chain, the futures market offers a great way to manage price risks.

Managing price risks: The producers of the commodity can sell natural gas futures contracts to secure better prices for their products, while the distributors and consumers can buy the contracts to maintain a stable supply of the commodity at a fair price.

Speculative trading: The majority of the traders in the natural gas futures market trade purely for speculative reasons, as the commodity is known to have adequate volatility. Speculators only aim to benefit from price fluctuations.

Diversifying portfolio: Fund managers and some large investors trade commodities as a means for diversifying their portfolio, and the natural gas market is one of the commodities they trade. Portfolio diversification helps to spread one’s risk across many assets, thereby reducing the effects of adverse market movements.

Inflation hedge: Paper money loses value due to inflation, but commodities appreciate in value when inflation bites hard. Of course, natural gas is not an exception. Investors can use it to protect their wealth when there is rising inflation.

How Natural Gas Futures Trade

Natural gas futures contracts are offered on the Intercontinental Exchange (ICE), Tokyo Commodity Exchange (TOCOM), Shanghai Petroleum and Natural Gas Exchange, Multi-Commodity Index (MCX), and of course, the New York Mercantile Exchange (NYMEX), which is a member of the Chicago Mercantile Exchange (CME) Group. Through the CME Globex electronic trading platform, the contracts can be traded from any part of the world, even after the regular market hours.

On the CME marketplace, a natural gas futures contract (NG) settles for 10,000 million British thermal units (mmBtu), and the price quotation is in U.S. dollars and cents per mmBtu. The minimum price fluctuation is $0.001 or $10 per contract.

Monthly contracts are listed for the current year and the next 12 calendar years, and a new calendar year will be added following the termination of trading in the December contract of the current year. The last trading day in any delivery month is the third last business day of the month preceding the contract month.

At expiration, the contract is settled by physical delivery of natural gas that meets the specifications set forth in the FERC-approved tariff of Sabine Pipe Line Company as then in effect at the time of delivery and shall be deliverable in satisfaction of futures contract delivery obligations. Traders, who don’t want to take or make delivery of the commodity, can roll over their contracts to the next expiration months.

All you need to start trading natural gas futures is to create an account with the exchange through your futures broker and deposit the required margin. A futures contract is a leveraged instrument, so you need not have the full dollar worth of the contract to start. Be cautious about leveraged instruments though — they can make you more money, but you can also lose more than you planned.

Natural Gas Futures Trading Strategies

Natural Gas Trading Strategy

Natural Gas Futures Trading Strategy

The natural gas futures market is one that we have quite a lot of trading strategies for. If you just put in the hard work required, it certainly is possible to find great trading strategies in this market.

The image above showcases one the day trading strategies on the natural gas market that we’re trading at this moment.

If you’re interested in getting ideas and edges for your own trading strategies, we recommend that you have a look at our edge membership!

Factors that Affect Natural Gas Futures

Many factors can affect the prices of natural gas futures, and here are some of them:

Weather: Natural gas demand usually rises during the winter, as people need it for heating their homes. In addition, severely cold weather can also limit production. Both the increased demand and reduction in supply can cause prices to rise.

Economic activity: A rise in economic activity would lead to a greater demand for natural gas and an increase in prices.

Storage and inventory report: Natural gas futures traders closely watch the weekly storage and inventory reports published by the Energy Information Administration (EIA), an independent agency of the United States Department of Energy. The report can induce price volatility.

Natural Gas Futures Seasonality

Here is a seasonal chart of the natural gas futures market:

Source

Conclusion

Natural gas is becoming increasingly important as it is a cleaner energy source than other fossil fuels. It is used in cooking, generating electricity, and producing industrial chemicals. Natural gas futures are offered on many commodity exchanges, such as the ICE, NYMEX, and TOCOM.

You can find more info about futures market here.

ARE YOU IN?

Sign up to our newsletter to get the latest news!

Login to Your Account



Signup Here
Lost Password