Key natural gas report to follow
The most important report that natural gas traders regularly refer to is the DOE (Department of Energy) Natural Gas Storage Report. It is released weekly on Thursdays and provides a detailed look at the net changes in natural gas storage levels in the Eastern/Mid-Western, South and West regions.
This information will give you insight on the demand and supply levels of natural gas in the market, which are crucial in determining the price.
Historical natural gas prices
To get the whole picture about the price of natural gas, it is useful to look at the price fluctuations in a historical context.
The price of natural gas has been in a decline since late 2008. This is to a great degree due to technological advances that decreased the cost of production.
Gas price chart 1995 - 2015
Although historical prices do not tell the whole story, when it comes to predicting the price of a commodity, they are useful as an indication of the overall trading range.
It is worth noting, that since natural gas has a more predictable supply and demand than oil, its price also tends to be easier to predict, which makes the market popular among trend following traders.
Trading natural gas
Investing in natural gas used to be a complicated process, but traders can now speculate on the price of natural gas online using CFDs to go both long and short.
CFDs (also known as Contracts for Difference) are contracts between a trader and a broker. They are basically tradable instruments that mirror the movement of the underlying asset and let you take positions without having to own any physical commodity.
It is worth mentioning that CFDs allow traders to go short, if they think the price of natural gas will decline, and still benefit from excellent leverage offered by the broker.
Trading example of going short on natural gas
As an example of how this works, let’s suppose that Natural Gas (NGAS) is currently trading at $3.1100. After doing your research, you anticipate demand for the fossil fuel to rise due to the cold season and therefore you expect the price to appreciate.
You buy 5 lots of NGAS, which equals to 500 contracts, at the quoted price. After two days, NGAS is trading at 4.1300 and you decide to close your position and exit the trade. Your profit from the trade is 4.1300 – 3.1100) x 1 lot x 500 contracts = $510.
Trading example of going long on natural gas
Let’s look at an example where you open a long position on natural gas. As the temperature in the winter season drops significantly in the US, you decide that it’s time to buy natural gas. You open a long position for 5 lots or 500 contracts of NGAS at $2.80 at market prices.
Two days later, a current of warm air arrives in the US unexpectedly from the Caribbean, increasing the temperature, pushing down Natural Gas prices. This triggers your stop loss order at $2.40. After your trade is closed, you lost a total of $200 [($2.80 - $2.40) x 500 contracts in your 5 lots position.