How to Trade Natural Gas: Top Trading
- Natural Gas trading is popular among traders due to its volatility. This is due to a multitude of causative factors which can be capitalised on with thorough research and appropriate market timing.
- It’s important for traders to know what affects Natural Gas prices, such as weather, supply and demand.
- Technical analysis along with fundamentals will allow traders to make informed decisions on their trading activity.
- Being familiar with Natural Gas trading hours can help to enhance a trading strategy.
WHY TRADE NATURAL GAS AND HOW DOES GAS TRADING WORK?
Natural Gas is a highly popular commodity amongst day traders, whereby the physical commodity is not handled or delivered at expiry. The spread is reasonable with high liquidity, making it easy for traders to get in and out of trades with little difficulty. Exposure to natural gas is not only accessible through the commodity itself, but several Natural Gas ETFs as well. Natural Gas trading involves similar strategies used to trade other commodities, such as gold and crude oil. Fundamental and technical analysis are highly useful, as well as a good understanding of what affects Natural Gas prices – such as weather, storage, supply and demand. Many traders also turn their attention to the major Natural Gas producers, such as BP, Royal Dutch Shell and the largest Natural Gas producer in the world Gazprom. Trading these companies allows traders to track the underlying price of Natural Gas.In this article we will cover the basics of Natural Gas trading, as well as more advanced tips for traders who want to improve their strategy.
NATURAL GAS TRADING BASICS
The below tips are the fundamental skills and knowledge to get ahead of the curve when trading Natural Gas:
Understand what affects Natural Gas prices
The price of Natural Gas tends to be correlated with the supply and demand inventories of the commodity itself. Historically, basic economics of supply and demand aligned with Natural Gas prices – which would rise when production levels fell and decline when production increased.
Four key things that affect the supply and demand of Natural Gas are:
Weather:Extreme or abnormal weather conditions can push and pull on the supply and demand forces.
Storage:The supply of Natural Gas in storage will affect the price depending on whether there is a surplus/deficit. If there is a surplus in storage, then prices are likely to be held down due to an abundant supply and vice versa.
Alternatives:Substitute products, especially more eco-friendly sources of energy such as solar and wind power affect Natural Gas prices. With an increased focus on “going green”, these environmentally friendly sources of energy may become more pertinent in the future.
Economic Growth:Increased growth particularly in industrial sectors, will usually push up the price of Natural Gas as demand will rise for consumables and services rendered.
Stay up to date with live prices using our Natural Gas chart.
Keep an eye on major producers of Natural Gas
A well planned Natural Gas trading strategy involves keeping an eye on the major producers of Natural Gas. A strong economy results in a high demand for power, fertilizers and commercial/industrial goods and services. Therefore, an upsurge in an economy correlates to higher prices, as a result of the increased demand.
United States and Russia hold the bulk of Natural Gas reserves globally. Monitoring the overall situation (political, climate etc.) in these respective countries will be beneficial in the trade analysis. The USD EIA Natural Gas Storage Change and USD EIA Working Natural Gas Implied Flow are important dates to keep in mind