Natural gas is a valuable source of energy and one of the most traded commodities in the world. Being the third most consumed source energy after oil and coal, natural gas has become a popular commodity in recent years for long term investment as well as for day trading. The colorless and cleanest fossil fuel is used as a source of energy for heating, cooking, electricity, chemicals, plantation and many more. In the past decade, the demand for natural gas has grown significantly as it is widely available and is a cleaner fossil fuel compared to any other energy source.
Natural gas is highly affected by seasonality, geopolitical developments, weather, supply, and demand, storage and global production. Many traders take advantage of small price fluctuations in this market, using a mix of technical and fundamental analysis.
In this guide, we will direct you step by step on how to get started trading natural gas. We will provide some insights into the natural gas markets, trading strategies, and the best brokers that offer you the option to day trade natural gas.
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How to Trade Natural Gas in 3 Quick Steps:
Trading natural gas can be done through several trading platforms and any individual investor can get access to natural gas contracts. However, before you start trading, you want to find the cheapest and most reliable option that enables you to execute a large number of orders with a minimum level of risk. Follow the steps below to get started.
1. Open a Trading Account
Open a free trading account with our recommended broker. As part of the registration process, you will be required to submit your personal details for KYC.
2. Deposit Funds
Once you have completed the registration and your account has been approved, you can transfer funds to your account by one of the provided payment methods.
3. Demo and Live Trading
Begin trading on a demo account. A demo account allows you to trade in real-time but also learn about the mechanics of gas trading and understand basic terms.
Step 1: Open a Natural Gas Trading Account
Day trading natural gas is a form of trading in which a trader closes all positions by the end of the trading day. Alternatively, traders can open positions for a period of two-three trading days which is called Swing trading. The most common way to trade natural gas is through futures exchanges, which are being traded on the Chicago Mercantile Exchange (CME) and the International Exchange in London (ICE). However, futures day trading requires a higher minimum deposit than other types of online platforms such as Contract for Difference (CFDs).
Different from futures exchanges where a trader must have sufficient funds (natural gas is a deliverable asset), CFD’s contract allow traders to speculate on the price of an asset without actually owning the commodity, meaning you are entering an agreement with another party to speculate on the price of the asset. Online platforms such as eToro and Plus500 are reputable CFD brokers offering traders to speculate on a range of financial assets including natural gas.
1. eToro - Best Natural Gas Trading Platform for Beginners
eToro is a leading social online trading platform that enables its users to trade a variety of markets and products. The company founded in 2006 and has revolutionized the CFD industry with innovative features such as the CopyTrader tool that allows users to copy trades of other successful traders. They also provide a CopyPortfolio tool that acts similarly to ETFs but through the CFD market. eToro is registered in Europe under the Cyprus Securities & Exchange Commission (CySEC), in the United Kingdom under the Financial Conduct Authority (FCA) and in Australia under the Australian Securities and Investments Commission (ASIC).
- An intuitive and easy-to-use social trading platform
- Regulated by CySEC, FCA, and ASIC
- eToro offers the CopyTrader that enables users to copy trades of other traders in the community
- eToro charges a withdrawal fee
- Natural Gas trading is not available in the United States
2. Plus500 - Competitive Spreads for Natural Gas Trading
Plus500 is a reputable company offering CFDs regulated by top financial authorities in different jurisdictions. The broker offers an easy-to-use trading platform for experienced traders and an extremely low spread of 3 pips for the natural gas versus US dollar pair. Furthermore, it offers a leverage ratio of 1:20 for natural gas trading, meaning you will be able to open a larger position than the amount of the investment you initially made. Plus 500 operates in the industry for more than a decade since 2008 and has developed a reliable market execution. The broker is regulated by the Australian Securities and Investments Commission (ASIC) in Australia, authorized & regulated by the FCA in the UK, and the Cyprus Securities and Exchange Commission (CySEC) in Europe.
- A fixed spread of 3 pips for natural gas contracts
- A leverage ratio of 1:20
- Regulated by CySEC, FCA, and ASIC
- Plus500 does not support MetaTrader 4/5
- Not available in the United States
- Scalping and Hedging are forbidden on Plus500 and does not offer Signal or Social Trading
Step 2: Learn How the Natural Gas Market Works
What is Natural Gas?
Natural gas is an energy source that provides 29% of global energy consumption. It is a raw material used to heat houses and buildings, cooking, electricity, vehicles, and the manufacture of chemicals and plastics. With the rise of global environmental issues, one should take into consideration the fact that natural gas is a much more environmentally-friendly fuel than other energy sources such as coal and oil. Click here for more information on trading oil.
Natural gas has been known to humans since ancient times, though it is in commercial use for the past few centuries. In fact, the first commercialized natural gas use dates back to around 1785 in Britain. Nowadays, the benchmark for natural gas trading is the Henry Hub futures contracts traded on the Chicago Mercantile Exchange (CME), which are named after the Henry Hub pipeline located in Erath, Louisiana, and serves as the delivery location for futures contracts on NYMEX and CME.
How the Natural Gas Market Works
The natural gas market is driven by long term contracts of governments and international organizations. The United States is the largest producer of natural gas, but also the largest consumer in the world. Russia, Iran, Qatar, and Canada complete the list of the top 5 producing countries in the world.
Natural gas is a global commodity that is produced in various locations around the world and is traded on international exchanges such as ICE NGX (which is the largest clearinghouse of physical natural gas), European Energy Exchange (EEX), GetBaltic Exchange, and the Chicago Mercantile Exchange (CME).
Natural gas prices are affected by market supply and demand factors such as production, extreme weather, geopolitical conflicts, storage and transportation, new pipelines networks, regulations, economic status, and seasonality. Here are some of the main reports to follow in order to get a better indication of natural gas’s status:
- Weekly Natural Gas Storage Report – EIA
- Natural Gas Weekly Update – US Energy Information
- EIA Natural Gas Inventory
- CFTC Natural Gas Speculative Net Positions
- CFTC Commitment of Traders Long/Short Report – Natural Gas
- CFTC Natural Gas Non-Commercial Net Positions
Step 3: Choose a Natural Gas Trading Strategy
Natural gas is a speculative commodity with endless trading opportunities. For day and swing traders, trading natural gas can be lucrative as it has days of high volatility and extreme price swings, while on the other hand, days of sideways market with relatively minor price fluctuations. Here are some notable strategies and tips that may help you to effectively trade natural gas:
Most day traders who trade for a living use an arsenal of technical analysis indicators. As the natural gas market has repetitive patterns and price movements, applying technical analysis as part of your trading strategy might be beneficial. The most basic indicator to help you trade natural gas is support and resistance levels, and trend lines. It’s also advisable to use Fibonacci retracement to identify entry and exit levels. More commonly used indicators include the Relative Strength Index (RSI) which identifies the overdemand and oversupply of an asset, the Moving Average (MA), MACD, and Bollinger Bands.
Fundamental Analysis – Market News, economic data and geopolitical tensions
Despite the development and growth of renewable energy, natural gas and the oil markets are being widely covered in the media. You will have to pay close attention to major producers of natural gas, in particular, the United States and Russia and economic data of top natural gas consumers (the US, China, and Iran). Furthermore, you must follow top natural gas companies such as Gazprom, ExxonMobil, China National Petroleum, and Royal Dutch Shell.
Like many other commodities, seasonality plays an important role in the supply and demand of the commodity. Historically, the best time of the year to buy natural gas is around April-May – natural gas prices tend to be higher during winter (December – February) and the summer (July – August). While winter is the peak time due to increased heating demands, it is also the time of the year when the production reduces significantly. Regardless, many day traders use natural seasonality patterns to detect many trading opportunities.
Regulation and price limit of natural gas
Natural gas distribution has always been subjected to regulation by governmental authorities. Like other essential commodities, natural gas functions as a necessity product, which requires a price limit. As you can in the chart below, in the past 30-years natural gas prices range between $1-$4. That is an important factor for day traders.
Step 4: Open a Natural Gas Trade
Open a natural gas trade may require a long procedure if you choose to trade through futures brokers or stock market (natural gas ETFs). However, if you choose to trade via a CFD broker such as eToro, the process is fairly simple. The first thing you should do is to visit eToro’s website and sign-up for a trading account. Once you have completed the registration process and deposited funds into your account, log in to the trading dashboard and search for natural gas at the search box at the top of the screen.
Next, you will be channeled to the ‘natural gas’ trading page where you can connect with other traders and view stats and charts. Whenever you want to place an order, click on the ‘Trade’ button, set the amount, the desired leverage ratio, and click on the ‘Open Trade’ button to get market execution
Natural gas is a volatile commodity with high price swings, hence, traders can expect to have significant trading opportunities. As long as natural gas remains a desirable source of energy, its price will continue to fluctuate. New natural gas pipeline projects such as the Power of Siberia pipeline and political interests influence natural gas prices in the short and long term. Natural gas production is a key driver of price fluctuation and therefore, every natural gas trader must pay careful attention to natural gas production and consumption reports.
Natural gas is a volatile ‘market trend’ asset, however, it is also an essential commodity that must stay at an affordable price limit, similarly to grains such as wheat, corn, and soybean. Looking at the all-time chart, natural gas prices are in a constant condition of ‘up and down’ as governments must control prices and maintain to demand for one of the most necessary commodities in our planet.
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What is the best time to trade natural gas?
Natural gas futures are traded on two main futures exchanges. On CME, the trading hours for natural gas are from Sunday – Friday 6:00 p.m. – 5:15 pm ET. On ICE, trading is available Sunday – Friday 23:00 p.m. – 10:00 pm GMT. on Etoro's platform, natural gas trading is available from Monday - Friday 01:00 am - 23:30 pm.
What is the market symbol for Natural Gas?
The ticker symbol for the natural gas spot contract is NG. The same ticker applies for the CME and NYMEX futures contract.
What are the main factors that influence natural gas prices?
factors that affect natural gas prices include seasonality, weather, geopolitical tensions, storage and transportation disruptions, production, and development of renewable energy sources.
How much money do I need to trade natural gas?
As natural gas is a deliverable commodity, futures exchanges require high margin. Therefore, the best solution is to trade natural gas through a CFD broker such as eToro.