Understanding The Basics on Natural Gas Futures Trading

Primarily, natural gas futures are exchange-traded and standardized contracts, and contract buyers have the option to take delivery a certain amount of natural gas from sellers such as 10,000 mmbtus at a specific price on a set delivery date in the future. The prices for natural gas futures are typically indicated in dollars and cents for each mmBtu, and these are traded in sizes of at least 10,000 mmBtus.Overview of Trading Natural Gas FuturesProducers and consumers of natural gas have the capability to manage the price risk of natural gas by selling and purchasing natural gas futures. Moreover, producers may apply a "short hedge" technique that can lock in a particular selling price for the natural gas produced. Businesses that are in need of natural gas can opt for the long hedge in securing the purchase price for the particular commodity or supply that they need.Speculators that assume the intricate price risk avoided by hedgers also consider trading natural gas futures, with the hopes of gaining profit from a favorable movement in the price of natural gas. Additionally, speculators choose to purchase natural gas when they have realized the possibility of a price increase. On the other hand, they opt to sell natural gas futures when the prices drop, so they can optimize their gains in the trading process.Guide to Futures TradesIf you have plans of buying or selling natural gas futures, it is imperative that you open an account for trading, preferably with a broker that specializes and handles futures trades. You can find several options available, although a number of online brokerages tend to deal with stock options. Regardless of the brokerage you select, you should go for one that offers a virtual trading platform that enables you to try out options and futures trading in an actual market condition without the use of real money.The prices of natural gas usually tank during October to February (heating season) or June to August (cooling season). However, the prices increase towards the last weeks of these seasons because of the last-minute purchases.It is also important to note the strength of trading in March, primarily at the end part of the heating season including the latter part of the air conditioning season by September. The moderate weather condition during April to June may lead to a drop in the demand for natural gas, so the prices may also be impacted. Nevertheless, the prices increases as there is a greater demand for natural gas. Hence, the idea of natural gas pricing is affected by various factors such as the usage pattern in cooling and heating and electricity production.Bottom LineAs with any type of investment, futures trading is not suitable for those who are afraid of taking risks or individuals that are faint-hearted. By commodities standards, it is safe to say that natural gas is a volatile type of goods that is subject to price fluctuations. Hence, futures trading may not be a suitable investment for you if you are not capable of handling the wild fluctuations of prices despite potential financial profits. Conversely, this type of trading is an excellent option if you are an aggressive investor who understands and employs the right techniques for optimizing your gains.