What Is Natural Gas and How To Trade It?

Natural gas is one of the world's most valuable energy commodities, used in various industries, and is one of the most traded and used energy commodities in the world. It can be used to generate heat and electricity and to fuel vehicles.

Given its crucial importance, many may want to understand what natural gas is precisely, what moves its prices, and how and when to trade it. This article delves into the ins and outs of natural gas trading.

TL;DR

• Natural gas is a crucial energy commodity used globally for heating, electricity, and fuel.
• It can be traded through Futurescontracts, where traders speculate on its price changes.
• Prices are influenced by supply and demand, weather, economic and geopolitical conditions, and storage costs.
• Natural gas is measured in British Thermal Units (BTUs).
• Trading hours are from 23:00 Sunday to Friday, with a break between 22:00 and 23:00 GMT.

What Is Natural Gas?

Natural gas is considered a fossil fuel. Fossil fuels refer to energy sources extracted from the Earth's crust. In other words, natural gas is essentially the product of the remnants of animals, plants, and microorganisms that lived millions of years ago. Natural gas is also a hard energy commodity that is mined or extracted from the earth, similar to gold, copper, crude oil, and gasoline.

Furthermore, there are different types of natural gas that are extracted in different ways. This is mainly because the extraction of natural gas is not always straightforward and easy. Accordingly, the natural gas that is easy to extract is called "conventional gas," whereas natural gas that is not as easily extracted is called "unconventional."

How to Trade Natural Gas

Trading natural gas involves speculating on its price movements, i.e., whether it will go up or down, and acting accordingly. This can be done in multiple ways, and some of the most popular ways is trading Natural Gas Futures.

What Are Natural Gas Futures?

To understand how natural Futures work, it is important to first comprehend how Futures contracts function, in general.

Futures are derivative contracts between a buyer and a seller, obligating them to transact the underlying asset at a predetermined price and date in the future. To learn more about how Futures contracts work, you can read our article - "What Are Futures Contracts and How Do You Trade Them?"

The same process applies to natural gas Futures, whereby the two parties involved in the contract are obligated to purchase natural gas at the preset price and time in the future.

In addition, it would be helpful to know the specifications of natural gas Futures contracts, which are as follows:

• Ticker Symbol: Natural gas contracts can be NG or ENG depending on the Futures exchange.
• Contract Months: All months of the year.
• Unit of measurement: It is usually measured in thermal units of about 10,000 million BTUs.
• Prices: Natural gas Futures are priced in cents per million BTUs.

To learn more about a Futures contract's specifications, read our article on "Terminology and Symbols in Futures Trading."

What Unit Is Natural Gas Traded In?

Natural gas, like other energy sources, tends to be measured in British Thermal Units (BTUs), which are essentially the amount of heat natural gas contains, which is needed to raise one pound of water by one degree Fahrenheit.

What Are Natural Gas Trading Hours?

Trading Hours: Natural gas is usually traded from 23:00 Sunday to Friday, 22:00 GMT, with a trading break between 22:00 and 23:00.

What Drives Natural Gas Prices?

Like many commodities, natural gas prices can be quite volatile and can be affected by a plethora of factors, some of which are the following:

• Supply and demand: Perhaps one of the most basic laws in finance, supply and demand posits that natural gas prices can depreciate if the supply exceeds the demand and appreciate if the demand surpasses the supply.
• Weather conditions: Weather conditions can affect gas prices. Accordingly, natural gas prices tend to hike during the summer when, naturally, the demand for heating is lower and tend to hike in wintertime due to heightened demand for heating.
• Economic and geopolitical conditions: Economic conditions, such as changes in currency rates or economic decline, can affect natural gas prices. In addition, geopolitical tensions and turbulence in natural gas-producing countries can lead to commodity price volatility.
• Storage costs: Storing and transporting natural gas can also affect its prices. If, for example, there is not enough storage space, it is likely to result in higher shipping costs.

Nonetheless, despite the aforementioned factors, it is important to note that past price patterns do not necessarily affect future prices and that the market can be volatile and unpredictable.

For traders interested in trading natural gas Futures, Plus500's Futures platform offers Futures contracts on commodities, indices, forex, and cryptocurrency with low and attractive day margins and no trading fees. Traders may also want to experiment with Plus500's free and unlimited demo trading account, allowing them to trade Futures contracts in real-market conditions without committing their real money.

Conclusion

In conclusion, natural gas is a vital energy resource that plays a significant role in global industries. Various factors influence its price movements, including supply and demand, weather conditions, and geopolitical events, making it a dynamic market for traders. For those interested in trading natural gas, Futurescontracts are a popular way to speculate on its price fluctuations. Understanding the key factors driving its prices and the mechanics of Futurestrading can help traders make informed decisions in this volatile market.

Now that you know more about natural gas Futures, you can start trading natural gas with Plus500.