A look at Trading Natural Gas Futures
Trading natural gas futures is an excellent way to speculate or invest in natural gas.
Natural gas has many uses including:
- Power generation
- Fuel for motor vehicles
- Residential use (e.g. cooking, central heating)
- Aviation fuel
As natural gas has many different uses, the cost of the commodity is influenced by a number of different factors such as weather, demographics, storage and exports.
Historically, domestic demand has been much higher in the winter months, due to colder weather. This is reflected in the winter expiring contracts.
Natural gas chart
Contracts are priced in MMBTU. This is 1,000,000 British Thermal Units. This is roughly the same as 1,000 cubic feet.
Nymex gas futures are for 10,000MMBTU of natural gas. If the nearest contract was priced at $7, the nominal value of the contract would be $70,000.
Currently the margin requirements on natural gas contracts are:
$8,775 initial margin
$6,775 maintenance
This amount may be too high for small traders. There are mini natural gas future contracts. Margin requirements and nominal amounts are only half the standard contracts.
Natural Gas Trading is a potentially lucrative way to trade or invest, however the potential extreme volatility can easily cause big losses.
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