ETFs and Beyond: How To Trade Natural Gas Futures (UNG, UNL, NAGS, GAZ, CHK)
Jared Cummans: Trading natural gas has long been the dominant way of obtaining exposure to this fossil fuel. While it is possible to establish positions using stocks and ETFs, the most direct and often most liquid options come from futures contracts (or futures-based products). High daily volumes coupled with erratic and sometimes unpredictable movements have given natural gas a big name in the commodity world. While some have gotten burned by NG’s massive slide in recent years, others have been able to profit through puts and other trading strategies. Below, we outline strategies for trading natural gas, the ultra-popular United States Natural Gas Fund (NYSEARCA:UNG), and more [see also 25 Ways To Invest In Natural Gas].
First things first, those looking to invest in futures will need to decide which exchanges they would like to utilize. Below, we outline three of the most popular options in the world for trading natural gas futures [see also Jim Rogers Says: Buy Commodities Now, Or You’ll Hate Yourself Later].
- New York Mercantile Exchange: When it comes to U.S. exposure, you will be hard pressed to find a better starting point than the NYMEX. The exchange offers a number of contracts as well as options on Henry Hub futures (the most popular). Investors can trade these contracts in all 12 months of the year, with each representing 10,000 million British thermal units (mmBtu). One benefit to these contracts is that they trade Sunday-Friday between the hours of 6:00 p.m. and 5:15 p.m (CST), meaning that investors can make a play for approximately 23 hours every day (there is a 45 minute break period between each day).
- Intercontinental Exchange: Known as the ICE, this exchange offers both UK Natural Gas Contracts and Title Transfer Facility (TTF) futures, which are based out of the Netherlands. These two options allow for a more global perspective on this commodity as it continues to grow in popularity [see also Analyzing Five High Yielding Oil & Gas Pipeline Stocks].
- Multi Commodity Exchange: For those looking stay invest abroad, the MCX offers exposure based out of India. Contracts are offered for all 12 calendar months with each representing 1,250 mmBtu. The smaller contracts may be a better option for investors with lower capital bases as it will cost much less to establish exposure. Note that the contracts are available Monday-Saturday, with no trading occurring on Sunday.
Common Natural Gas Trading Strategies
As far as futures contracts are concerned, playing natural gas is going to require a considerable amount of attention and should be left to only the most active of traders. Neglecting your position for even as long as an hour can have a dramatic effect on the outcome of your investment. Weather patterns are the best-known price drivers for this commodity, so be sure to keep an eye on the ten day forecast as expectations for temperature changes can often shift prices. Finally, it is important to remember that as a primary trading instrument, developing trends in markets and how the majority of traders are behaving can also skew NG prices. Remember, the trend is your friend [see also The Ultimate Guide To Natural Gas Investing].
One of the most popular trading strategies for natural gas is to simply utilize the United States Natural Gas Fund (NYSEARCA:UNG), an ETF which exchanges hands over 12 million times a day. UNG is home to over $1 billion in assets, making it one of the biggest and most popular ETFs in the world. The fund invests in front month futures contracts for NG and is coveted for its volatility. Keep a watchful eye on this product, as it is known to fall prey to contango, erasing value for a number of investors. Other ETF options for natural gas include Dow Jones-UBS Natural Gas Subindex Total Return (NYSEARCA:GAZ), United States 12 Month Natural Gas Fund (NYSEARCA:UNL), and the Teucrium Natural Gas Fund (NYSEARCA:NAGS).
Further Resources and Reading
For further reading on natural gas and related topics, check out some of the links below [see also The Ten Commandments of Commodity Investing].
- Commodity HQ Trading Center - Our free trading center offers details on your favorite commodity futures and exchange traded products.
- Commodity HQ Heatmap Tool - Our free tool allows investors to easily compare the past performance of their favorite commodities.
- NYMEX Natural Gas Page – Home page for natural gas on the NYMEX.
- ICE Natural Gas Page - Home page for natural gas on the ICE.
- MCX Natural Gas Page - Home page for natural gas on the MCX.
Written By Jared Cummans From CommodityHQ Disclosure: No Positions.
CommodityHQ offers educational content, analysis, and commentary on global commodity markets. Whether you’re looking to speculate on a short-term jump in crude or establish a long-term allocation to natural resources, CommodityHQ has the information you need.