Natural gas is one of the most important fossil fuel energy sources used by people globally.
But did you know? You can also trade Natural Gas in the futures market!
In this post, let me walk you through the basics of Natural gas, and why you should consider trading Natural gas!
What is Natural Gas?
Natural gas is one of the most important fossil fuel energy sources in the world. It is formed from the remains of plants and animals that are buried under the earth’s surface and ocean floors. Over time, earth pressure and heat changed these remains into materials like oil and natural gas.
Natural gas is produced from onshore and offshore natural gas and oil wells, as well as from coalbeds.
The top natural gas-producing countries as of 2021 are:
- US: 34,518 bcf
- Russia: 24,775 bcf
- Iran: 8767 bcf
- China: 7486 bcf
- Canada: 6435 bcf
The US produces nearly all of the natural gas that it uses, with 5 of the 34 natural gas-producing states producing about 70% of US natural gas production in 2021:
- Texas: 24.6%
- Pennsylvania: 21.8%
- Louisiana: 9.9%
- West Virginia: 7.4%
- Oklahoma: 6.7%
Why do people use Natural Gas?
As a fossil fuel, natural gas is a relatively clean-burning fuel compared to the likes of coal and petroleum.
Reason being, it emits fewer types of most air pollutants and CO2 to produce an equal amount of energy.
Natural gas is consumed for many purposes, such as electricity generation and heating, especially in countries that experience winter, like the US and Europe.
Top 3 reasons to trade Natural Gas
Just like energy produces like crude oil, traders can gain exposure to natural gas in the financial markets through the futures market, such as the Henry Hub Natural Gas futures (NG).
Here are the top 3 reasons why a trader should consider trading natural gas:
#1 Increasing importance of natural gas among global fossil fuel consumption
Natural gas consumption has been on an increasing trend, relative to the likes of coal and petroleum.
In fact, regions like US and Europe have been replacing coal with cleaner fuels like natural gas in the past decades for purposes like electricity generation.
This improves overall CO2 emission as natural gas burns in a relatively cleaner manner compared to coal:
#2 Increasing demand for natural gas
Natural gas has also experienced an increase in demand for the past decades. In the US, natural gas consumption has been on a rising trend since 1950:
#3 Clear seasonality
Natural gas also has very clear seasonality, be it from fundamentals like consumption and inventory (to be discussed in-depth in a separate article) to price.
As an example, natural gas price trends in an almost similar manner to US electricity price.
As a result, reliable fundamental factors make it easier for traders to gain extra insights into how to best enter or exit a trade, unlike certain financial instruments with weaker seasonality.
Trade natural gas with Henry Hub Natural Gas futures (NG)
Natural Gas (NG) futures are popularly traded as they are very liquid futures product. It is traded under the New York Mercantile Exchange (NYMEX), with the specs as shown below:
Symbol: NG
Contract multiplier: 10,000 million British thermal units (mmBtu)
Minimum tick size of NG is $0.001 unit, which translates to a value per tick of $10
Verdict: Access one of the largest energy market with Natural Gas futures (NG)!
With natural gas being one of the most important energy sources in the world, it is no doubt that trading natural gas can present a huge opportunity for traders looking to diversify their trading arsenal from the usual bonds or equities.
Are you going to give natural gas trading a try? Let me know in the comment section below!
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Disclaimers
Any of the information above is produced with my own best effort and research.
This post is produced purely for sharing purposes and should not be taken as a buy/sell recommendation. Past return is not indicative of future performance. Please seek advice from a licensed financial planner before making any financial decisions.
Leverage is a financial tool that comes with its advantages and risks. Please learn and understand both the upsides and downsides of leverage before using it for trading.
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