Natural gas is one of the most popular commodities to trade, largely due to its high volatility – and the profitable opportunities the market invites.
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Entry, take profit & stop loss
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Lifetime
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This fossil energy source is widely considered to be much less harmful to the environment than coal or petroleum. Furthermore, it has both industrial and commercial uses.
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Interested in natural gas trading yourself? Then you have come to the right place! In order to gain access to relevant markets, you will need to find yourself a decent broker.
On this page, we are going to run through what natural gas trading entails, and how to go about it. Moreover, we are going to pass on some tips and strategies on how to access this commodity and review the best natural gas trading brokers active in the space right now.
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Natural Gas Trading Fundamentals
As you more than likely know, trading consists of buying and selling an asset with high hopes of making gains. This is no different from trading natural gas. After all, this hugely demanded commodity is priced, bought, and sold on a global scale – each and every day.
- Try to correctly speculate on whether the price of natural gas will rise or fall
- Place an order with your broker so that your position is clear
- You speculate correctly – selling the natural gas position for more than you bought it for
- The above scenario would indicate you were able to make a profit
When trading this commodity, you will undoubtedly do so in an online environment via a broker. You are almost certainly more likely to trade natural gas on a short-term basis. For instance, when day trading.
In brief, day trading is a strategy that calls for opening trades and keeping your positions open for less than one day. This is usually a case of exiting the market within just minutes or hours of entering it.
An alternative way to access this commodity in a short-to-medium manner is to swing trade natural gas. This strategy entails holding trades open for days, or weeks at a time. We are going to talk about the various ways to trade natural gas later on.
What Drives the Cost of Natural Gas?
As with any asset, ‘supply and demand’ drives the cost of natural gas. Usually, the higher the supply in relation to demand, the lower the price, and vice versa.
Alternatives to this commodity are somewhat limited in the short-term, so the value can shift on a second-by-second basis. Consequently, the market can be highly volatile.
Supply and demand of the markets can be affected by a plethora of different things such as storage levels, weather, crude oil production, and net imports.
When demand for this asset is on the up, those supplying it can put the prices up. There are occasions however when the prices fall with increased demand. This can depend on things like cold or hot weather, imports and exports, liquefied natural gas (LNG) levels, fuel alternatives, and their prices.
How is the Price of Natural Gas Calculated?
You will generally find that natural gas is quoted to you in US dollars or a currency from another strong economy.
In terms of weight, natural gas is measured in British thermal units, cubic feet, or cubic meters. To give you an idea – one trillion of the aforementioned cubic feet would be the equivalent of a 2-mile cube of natural gas.
We touched on the fact that natural gas is usually quoted to you by your broker in US dollars. The reason that many commodities (such as gold, silver, and oil) are priced in USD is that this currency is the most traded and in-demand globally.
Nonetheless, if you are residing in a country with a currency differing from the one quoted – you can simply exchange it for US dollars at your trading platform. In doing so, you can start trading natural gas right away!
When is the International Natural Gas Market Open?
You can trade natural gas 24 hours a day and 7 days a week, by gaining access to global markets through your broker.
Please find below a list of the international gas market opening hours:
- Chicago market is open from 17:00 to 04:00, from Sunday through to Friday – Central time
- New York opens between the hours of 18:00 and 05:00, from Sunday through Friday – Eastern time
- London market operates from 23:00 to 10:00, between Sunday and Friday – UK time
Not all trading platforms will be able to provide access to exactly the same global markets as each other. Accordingly, if you are interested in a particular one, you should check what the platform can offer you before you commit to it for your trading endeavors.
How Can I Trade Natural Gas?
Now that we have shed some light on how natural gas is measured and valued – this brings us smoothly onto how you can trade it yourself.
Natural Gas Trading: CFDs
Many traders opt to trade natural gas via CFDs (Contracts for Difference). CFDs are generated by your broker and allow for you to hypothesize on the price shifts of natural gas. The beauty of CFDs is that there is no need to take ownership of the asset, in this case, tanks of natural gas!
This is because CFDs are tasked with monitoring the real-world price fluctuation of the asset.
All that you need to do is speculate on whether you think the price of natural gas will go higher or lower than it is at the time of placing your order. In a nutshell, this is a contract between yourself and the trading platform responsible for executing your orders.
The benchmark for natural gas is usually Henry Hub Natural Gas (NG) futures, which are traded through the Chicago Mercantile Exchange Group (CME Group). The NG is comparable to a third-party stock exchange – showing shifts in buy and sell prices. This is usually what the CFD instrument will track.
For clarity, let’s show you a quick example of a natural gas CFD:
- Let’s say the Henry Hub Natural Gas (NG) benchmark values natural gas at $2.890
- The price of natural gas then rises to $2.999
- This indicates a price increase of 3.77%
- Your natural gas CFD will mirror this – also increasing by 3.77%
- Should the price fall by 1% – again, your CFD will reflect this
We find that the lion’s share of online brokers in the space will allow you to trade natural gas CFDs on a commission-free basis.#
CFDs also allow you to apply leverage of up to 1:10 to your natural gas trades. In case you are unaware of what leverage is, it is similar to a loan from your broker.
To give you an idea, with leverage of 1:10 you can trade using up to 10 times more than your stake. For instance, if you have $200 to put into your natural gas position, the aforementioned leverage would magnify this to $2,000.
Below you will see an example of a leveraged natural gas CFD trade:
- Your trading platform of choice values natural gas at $2.800
- You have a feeling the price is going to fall
- With that in mind, you create a sell order – risking $1,000
- You apply leverage of 1:10
- Natural gas falls in value by 2.8% – so your prediction was correct
- From your initial $1,000 sell order – you made $28 in profit
- However, you applied leverage of 1:10 – so your $28 gains are amplified to $280
It is really important to note that although leverage can indeed make your gains much bigger, it can also intensify losses.
If you are a US citizen, you are not permitted to trade via CFDs, as per CFTC rules, enforced by the SEC. If a broker offers you CFDs in the USA, that trading platform will not be regulated and thus – we would suggest avoiding it at all costs.
Natural Gas Trading Options
Options are another way of trading the future price of natural gas. They enable you to predict whether the price of the commodity will rise or fall.
You then have the right, but not the obligation, to buy or sell the underlying asset before they expire. Options contracts always come with an expiry date, and although this can vary – it is usually a 3-month timeframe.
If you have a feeling that the price of natural gas is going to increase, you will purchase call options. Doing this ensures that you are purchasing the asset at a very specific price.
Let’s offer a practical example of natural gas options:
- You purchase call options – the expiry date is 3 months
- Your strike price is $2.900
- This indicates that, on or before expiry, you feel the value of natural gas is going to rise above $2.900
- You gain access to the market by paying a ‘premium’ in the form of a percentage
- Let’s say in this case your broker charges 4%
- Each contract is worth $0.1159 (4% of $2.900)
- The total minimum order is 1,000 contracts, so your total premium outlay is $115.90
There are two possible outcomes in the above scenario. Should the price of natural gas exceed the ‘strike price’ – you can buy it at the specific price – this is your right.
For instance, if the contract had expired at a time when natural gas is valued at $3.000, you would have made $0.1 for each contract ($3.000 minus the $2.900 strike price). If natural gas doesn’t exceed $2.900, all that you stand to lose is your premium of $115.90.
If, however, you had believed the price of natural gas would fall before the expiry date – you would buy put options. As you can see, this is simply the opposite of the example above.
Natural Gas Trading Futures
Natural gas futures are comparable to CFDs, in that you are able as a trader to apply leverage, as well as going short and long.
The key difference between the two is that natural gas futures have an expiry date attached. Moreover, in contrast to options, if you still have ownership of the contracts when the futures expire – you are duty-bound to buy the underlying asset.
Your broker will generally settle in cash, meaning you don’t need to take delivery of tanks of liquidized natural gas.
Futures contracts tend to have a timeframe of 3 months. when 3 months have passed you must buy or sell the asset at the agreed price. Whether you buy or sell, of course, is dependent on whether you predicted a rise or fall in price.
Both options and futures will invariably come with a strike price. However, in the case of futures, you do not have to pay a premium, meaning you either have to trade with leverage – or layout more money to gain access to the market.
Natural Gas Trading ETFs
If you are interested in buying natural gas indirectly, you can do so via ETFs. In doing so, this enables you to invest in natural gas, cutting out the need to trade in the futures or CFD market.
You will see below an example of how buying natural gas via an ETF can be achieved.
- You want to invest in the long-term value of natural gas
- You buy a United States Natural Gas Fund LP (UNG) ETF via your trading platform of choice
- The ETF monitors the Henry Hub/natural gas futures contract on The New York Mercantile Exchange (NYMEX)
- This gives you access to some of the biggest natural gas companies in the world
Some trading platforms will allow you to invest in a natural gas ETF on a commission-free basis. This allows you to keep the position open for as long as you wish without needing to worry about fees eating into your profits.
Three Popular Natural Gas Trading Strategies
Like the idea of natural gas trading in an online setting, but not sure where to begin?
We have thoughtfully put together 3 commonly used trading strategies. No matter what your trading proficiency is, these strategies are indispensable.
Natural Gas Swing Trading
When partaking in natural gas swing trading, you will be drawing on technical analysis with the goal of forecasting the sentiment of the market.
This enables you to follow the wider trend. When the market momentum of natural gas is solid, you will be able to make gains by utilizing a buy order.
Once you have locked in your profits you are free to re-enter the market to catch a new natural gas trend – potentially in the opposite direction. To clarify, this means to first action a sell order so you can cash out your long position on the trade.
Then, you’d need to place another sell order to catch the new downward trend. Again, leaving your position open for days or weeks at a time.
Use Support Levels
Support levels are commonly described as ‘price levels’, due to the fact they show the resistance and support of the market in question.
By adding support levels to your trading strategy, you will be able to see potentially profitable trading opportunities. If natural gas is on a downward trajectory, a ‘stop level’ can be executed. Historically, this is the price that has stopped the trend on natural gas from dropping any lower.
Another option is to go into the market higher than the support line – and create a ‘stop-loss’ order below the same line. This will at least reduce the risk factor somewhat.
Natural Gas Scalping
Natural gas scalping could be a good strategy for you if you want to make smaller profits on a steady basis.
This usually entails opening and closing several trades, dozens or even hundreds of times a day. This is perfect for natural gas trading in particular as the market can be so volatile.
So, how does one scalp? The idea is to cash in at times when natural gas is trading in a narrow price range.
For instance, let’s imagine that natural gas has been trading between $2.800 and $2.900 for a week now. This narrow price range means that you can enter successive buy and sell orders – within the two prices. As you can imagine, this is a fairly low-risk strategy.
The reason scalping is considered low risk is because it is inevitable that the price of natural gas is going to rise above $2.900 or fall below $2.800 at some point.
But, the way in which you would counteract this is by placing a stop-loss order at either end of that price range. This enables scalpers to cash in on their position for as long as the range continues.
Natural Gas Trading Tips
By this point, we have covered strategies, fees, and near enough everything in between. Now, let’s offer up some useful tips you might want to add to your own natural gas trading strategy in the future.
Read Natural Gas Trading Books
By performing a simple internet search, you will find that there is a trading book for just about every financial asset.
Some of the best natural gas specific books include:
- Natural Gas Trading: From Natural Gas Stocks to Natural Gas Futures: Your Complete, Step-by-Step Guide to Natural Gas Trading – by Justin Adams
- Trading Natural Gas: A Nontechnical Guide – by Fletcher J. Sturm
Sometimes it’s worth finding a more generalized book about an asset class. An asset class is essentially a group of similar assets. In this case, you would find a book on ‘commodities’. You never know, it might inspire you to branch out and diversify your portfolio.
To give you further inspiration, the best commodities trading books include:
- The Little Book of Commodity Investing – by John Stephenson
- Commodities For Dummies – by Amine Bouchentouf
- A Trader’s First Book on Commodities: An Introduction to the World’s Fastest Growing Market – Carly Garner
- Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Market – by Jim Rogers
If you don’t have space for books, you can always download digital books, or audiobooks instead. Why not go one step further and partake in an online course on trading and technical analysis for beginners!
Keep Abreast With the Latest Natural Gas News
As we touched on earlier, various factors can affect the price of natural gas. For that reason, it is important to keep abreast with the latest global financial news.
News to look out for when trading natural gas include the following:
- Changes in the volume of natural gas production
- Amount of natural gas held in storage
- Economic growth levels
- Changes in the weather
- Import and export levels
- Alternative fuel price and availability
If you don’t have time, or don’t feel confident in knowing what to look out for – sign up for a subscription service. Subscription services will send you all the latest live financial and economical news, in relation to the asset you are trading.
Use Natural Gas Trading Signals
Perhaps you are just starting out in the trading scene, or lack the time to utilize analysis to its full potential.
Many traders in this position sign up to a natural gas trading signal provider. These providers send signals, comparable to trading suggestions on what position you should take. Signals include whether to buy or sell your chosen asset. This includes stop-loss and take-profit suggestions for the trade.
It is entirely your call whether you decide to act on the trading signals you receive – but they do save you a lot of legwork. We at Learn 2 Trade also real-time signals – with our Telegram group now consisting of over 5,000 members. Most of our signals are based on cryptocurrencies and forex, but we do dabble in wheat trading when an opportunity arises.
Utilize a Natural Gas Copy Trading Feature
Copy Trading isn’t offered by every trading platform, nor will it appeal to everyone. This is another feature that is just as handy for newbies as it is for time-starved traders.
In a nutshell, copy trading allows you to choose a pro-investor you like the look of – and copy them like-for-like. You can select who to copy by surveying a variety of information like risk level, preferred asset/s, gains, and losses of past and present.
If the pro trader risks 3% of their portfolio on a natural gas buy order – this will be mirrored in your own portfolio too. There will be a minimum investment amount required to copy a trader, and there will usually be hundreds of other traders like you copying them simultaneously.
Trade Natural Gas With Paper Money
Trading natural gas with paper money is a sure-fire way to get to know the market better. This is essentially a demo account offered by your chosen broker.
The best demo accounts usually accurately reflect real market conditions and come packed with paper money. You can hone in on your price chart reading skills, develop strategy ideas, and learn from any mistakes – for free!
Key Metrics: Finding the Best Natural Gas Trading Broker
As we’ve said, to access the markets and start trading natural gas – you must do so via a broker.
In addition to looking for a trading platform that offers access to this particular market – there are a few other things to be mindful of.
Commission and Other Fees
Starting with commissions, each broker differs. For this reason, you need to check what fees you are going to entail before signing up.
Some online brokers charge a flat fee in excess of $10 for each trade – so, that would mean paying $10 to enter the market, and then another $10 to exit. This would make it highly unsuitable for small stakes of tight profit targets.
With that said, we find that the vast majority of trading platforms charge commission in the form of a percentage.
Here is an example of how the commission can affect your natural gas trading endeavors:
- Let’s say your broker charges a 1% commission for accessing the market
- Your stake in the natural gas trade is $1,000
- As such, you would need to pay your broker $10
- If your trade was worth $1,200 by the time of closing, your broker would require an additional $12
If you reside in a country where you can trade CFDs, you can usually trade without paying any commission.
Swap Fees
Now a mention for ‘swap fees’, otherwise called ‘overnight financing fees’, or ‘swap interest’. Whilst, not every broker will charge this fee, it is important to be aware of what it is.
When you leave a CFD position open overnight, whether or not with leverage – your broker will charge you a fee. This is because all CFD instrumented are leverage products.
This fee is chargeable for every single day you leave your position open. In percentage terms, the rate is going to be minute when you view it on a day to day basis.
But if you hold a position for weeks these fees can soon add up. Moreover, the rate is usually higher on weekends and dependent on the market.
Inactivity Fees
Another fee to keep in mind is ‘inactivity fees’. Again, not every broker is going to charge you for not using your account. Some trading platforms charge a monthly fee if you have not actively traded or funded your account for a specified length of time.
The time limit tends to be 12 months, but we have come across brokers who start to charge after 3 months of inactivity. Always read those terms and conditions before signing up, as the inactivity charges are taken automatically and can clear out your account.
Deposit and Withdrawal Fees
Some, but not all, brokers will charge you for depositing/withdrawing.
Whilst this is rare – fees can depend on your payment method of choice, the value of your withdrawal request, and even the currency you are using to fund your account.
Always check the fee table. Ideally, the only fee you will pay for funding your account is a conversion fee – should the trading platform use a currency different from that of your own.
For instance, quite a few platforms charge a reasonable 0.5% currency conversion fee if you are not paying in US dollars. To put this into perspective, if you funded your account with 1,000 euros, you would pay 5 euros from that to the broker for converting it for you.
Platform Navigation
Granted, this might not sound like a super important point to make, especially following on from fees and commission. However, choosing an easy to use platform is crucial for a smooth trading experience.
This is especially the case for people who are new to natural gas trading. If the website you are trying to use is overly complex and you find it difficult to find your way around – placing orders is going to be nothing short of painful.
Fear not, there are heaps of user-friendly trading platforms out there with easy to use search facilities, and even educational content. This will make finding the specific asset you want to trade a breeze – as will the order placement process.
Deposit and Withdrawal Options
The lion’s share of natural gas brokers will accept a variety of payment methods when it comes to depositing and withdrawing funds. These will often be the ones you would expect, such as credit and debit cards and wire transfers.
Many modern online brokers now accept e-wallets such as PayPal, Skrill, Neteller, and such. If there is a particular payment type you have in mind – double-check that the trading platform accepts it.
A final note on deposits and withdrawals is that wire transfers invariably take a few days to hit your account. This of course means that you would have to wait a few days before placing your first natural gas trading order.
Regulation
We believe that sticking with only regulated brokers is the best way forward. There are hundreds, if not thousands of websites offering financial services these days. So, you can bet your bottom dollar that there are a lot of sharks to watch out for in the world of natural gas trading!
The only way to know for sure that a company is above board is by choosing one which has been handed a broker’s license. Trading commodities like natural gas can be risky business, so regulatory bodies such as ASIC, CySEC, FCA, and CFTC wield the power to enforce strict rules on financial providers.
This means that each broker has to follow a specific set of regulatory demands, submit annual audits – and treat clients in a fair and professional manner. Additionally, trading platforms must keep their own capital in a separate tier-1 bank account from their clients.
Spreads
As you likely already know, the spread is the gap between the buy price and the sell price of an asset, in this case, natural gas. The tighter the spread, the better it is for your wallet.
The spread on natural gas varies from broker to broker, but we found it as low as 0.004% on some trading platforms.
Best Natural Gas Trading Brokers
By now you probably feel confident enough to get out there and start trading natural gas immediately. The problem is you need to find a broker first, and a good one at that. As we said, watch out for the sharks.
With that in mind, we have put together a list of the best natural gas trading brokers right now. All of the brokers we have recommended are licensed, regulated, and well respected in the natural gas trading community.
1. AVATrade – Natural Gas CFDs With Competative Spreads
AvaTrade is somewhat of a veteran when it comes to natural gas trading. With over 10 years’ experience in the financial services field, you can bet that this broker is popular amongst traders of all levels of expertise.
You can rest easy knowing that the broker is under strict rules and regulations from various respected bodies. Jurisdictions include Ireland, Japan, Australia, Poland, Canada, and even Abu Dhabi.
AvaTrade provides access to a large array of CFDs, with accessible leverage capped at 1:10 for UK and European residents, as per ESMA enforced limits. When it comes to spreads, the platform offers $0.002 over market/fixed spread.
If you are a MetaTrader4 enthusiast like most of us, you will be delighted to know that AvaTrade is fully compatible with MT4. MT5 is also supported.
Not only that, but the platform has its very own app. The app is called ‘AvaTradeGO’, making it super easy to fund your account and open and close positions on the move.
In addition to the aforementioned benefits of using AvaTrade to access natural gas, the broker also offers clients a demo account free of charge - loaded with paper funds. This enables you to strategize without risking your own capital.
It’s crucial to note that AvaTrade is a commission-free online brokerage, but there are fees to bear in mind. Notably, there is a charge of $50 per month if you do not use your account to actively trade - for a period of 3 months.
This inactivity fee will be taken every month until your account is empty. After 12 months of inactivity, the platform will also charge clients a $100 administration fee. If you intend on trading fairly frequently, for instance using a natural gas scalping strategy, this shouldn't be a problem.
You can open an account with this broker for $100, using a variety of methods. Accepted payment types include; Visa, MasterCard, and bank wire transfer. AvaTrade also accepts a good variety of e-wallets, such as WebMoney, Neteller, PayPal, and Skrill.
- Minimum deposit is $100
- Leverage of 1:10 offered on natural gas trades
- Handy AvaTradeGO mobile app
- Natural Gas trading demo only vaild for 21 days
2. VantageFX – Ultra-Low Spreads
VantageFX VFSC under Section 4 of the Financial Dealers Licensing Act that offers heaps of financial instruments. All in the form of CFDs - this covers shares, indices, and commodities.
Open and trade on a Vantage RAW ECN account to get some of the lowest spreads in the business. Trade on institutional-grade liquidity that is obtained directly from some of the top institutions in the world without any markup being added at our end. No longer the exclusive province of hedge funds, everyone now has access to this liquidity and tight spreads for as little as $0.
Some of the lowest spreads in the market may be found if you decide to open and trade on a Vantage RAW ECN account. Trade using institutional-grade liquidity that is sourced directly from some of the top institutions in the world with zero markup added. This level of liquidity and availability of thin spreads down to zero are no longer the exclusive purview of hedge funds.
- The Lowest Trading Costs
- Minimum deposit $50
- Leverage up to 500:1
Open an Account With a Natural Gas Trading Broker Right Now
We hope by now you feel ready to get started on your natural gas trading adventures.
You will see below a simple 3 step narrative of the signing up process at most online brokers, for your convenience.
Step One – Sign up With a Natural Gas Trading Brokerage
Assuming you have made a final decision on the trading platform you wish to use – head on over to the broker website and find the ‘sign up’ link.
Next, fill in the information required by the platform. This will invariably include your full name, residential address, email address, and in most cases national tax number.
Presuming you have chosen a regulated broker, you will need to provide a copy of your government-issued photo ID – think along the lines of a passport or driving license.
The reason for this is that the regulatory body states that any financial provider must follow KYC (Know Your Customer) procedures, in a bid to prevent financial crime and identity fraud.
Step Two – Deposit Funds Into Your Account
Next, before you can start trading natural gas, you will need to put some money into your new trading account.
The process is super easy. Simply select the relevant payment method from what’s available on the platform, decide how much to deposit – and confirm your choices.
Step Three – Place an Order
Now that you have successfully funded your new account you can begin trading natural gas.
As we have detailed in this guide, you need to decide whether you think the price of natural gas will rise or fall – and place the appropriate order with your broker.
It’s worth trying out a demo account to get a feel for the platform, and indeed the market. If your online broker offers paper money accounts, take advantage of it before blowing your newly added trading capital and learning the hard way.
To Summarize
It doesn’t matter whether you are trading natural gas, gold, or foreign currencies. Before you can start trading effectively you must have a clear understanding of the market and how to utilize technical and fundamental analysis.
Sure, it can be daunting, but there is a wide scope of tools and features available for beginners to help you on your way. There’s something for everyone – whether it be our trading signals, copy trading, or news subscription services.
If you are a complete novice on the subject, it’s worth checking out online courses aimed at beginners – specifically on trading and technical analysis. Many trading platforms offer demo accounts and educational videos to clients.
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