Trading natural gas: how can you invest in natural gas?
Today, putting money into a savings account does not garner much interest anymore, which means more and more people are looking for attractive investments. Natural gas may be such an attractive investment. The demand for natural gas will only increase in the future. But how to invest in natural gas yourself?
How do you invest in natural gas?
Do you want to know how to benefit from natural gas price movements? You can invest in natural gas both directly and indirectly. In this article we discuss the different methods that exist to trade in natural gas.
Actively trading in the raw material
There are several ways to trade in natural gas. You can trade in the price of natural gas using contracts. However, you should note that a small transaction fee is charged on each transaction. Of course, if you actively trade this amount will be larger than if you invest less frequently.
When you trade in natural gas through contracts, you only trade in the price of the raw material. You never actually get the natural gas delivered. A big advantage of contracts is that you can also benefit from falling prices by taking a short position.
Do you want to trade natural gas CFDs yourself? You can so with a free demo at Plus500! 72% of retail investors lose money on CFDs. Use the button below to open a free demo account:
You can also invest in companies that make their money from gas extraction. It can be attractive to invest in these companies when the gas price is high. Shell and Gazprom are two companies that often trade in natural gas.
When you start investing in natural gas shares, it is important to review the company data. After all, there are other factors besides the price of natural gas that determine the development of a company’s share price. Even with natural gas price rising, a company can produce poor results.
Do you want to buy natural gas shares? It is prudent to buy natural gas shares at an affordable broker. This way you avoid losing a lot of money through transaction fees. In our comparison of high-quality brokers you can discover directly where you can invest in natural gas shares against attractive fees:
Investing in natural gas ETFs
It is also possible to invest on the price of natural gas with ETFs. ETF stands for exchange-traded fund. An ETF is a fund that is freely traded on the stock exchange. There are several natural gas funds that attempt to track the price of the raw material.
A good example of this is the VelocityShares 3X Long Natural Gas ETF. This fund monitors the price of natural gas as closely as possible. Leverage is applied within the fund. As a result, the fund moves stronger than the price of natural gas itself. This allows you to quickly achieve high returns. However, if the price of natural gas plummets, you can also quickly lose a considerable amount.
Another option is the United States Natural Gas Fund or UNG. This fund is focused on the price of natural gas within America. You can use this fund to speculate on price increases and declines in the raw material.
How is the price of natural gas determined?
Natural gas is a valuable raw material used by both individuals and companies. For example, you probably know that natural gas is used for cooking. The Dutch government is working to make the Netherlands natural gas-free. But even in a natural gas-free country, the raw material is still used for power plants to generate electricity.
If you want to determine whether buying natural gas is a smart move in the long run, then you must look at global demand. For example, the demand for natural gas in the Netherlands may decrease. However, this does not mean that the price of natural gas in emerging economies such as China’s will not rise.
The price of natural gas is partly linked to the global economy. In good economic times, there is often more demand for natural gas. But even in bad economic times, there is still demand for natural gas. Even the weather can be an important influence on the price. Both freezing winters and warm summers can lead to an increase in price.
In freezing winters, more natural gas is used to heat houses. When it is very hot, more electricity is used to cool houses. Finally, the dollar price also affects the price of natural gas. The price of natural gas is quoted in dollars. At a low and therefore cheap dollar, the price of natural gas usually rises. This is because importers outside the United States can then buy and store natural gas cheaper.
In short, given a sound global economy, extremely hot or cold weather, and a low dollar price, the price of natural gas often rises. Of course, this is short-lived and other factors also play a role. However, these may be good reasons to invest in natural gas.
How can you actively trade natural gas?
Investing in natural gas is becoming increasingly popular. It is characteristic of this type of investment that the price can fluctuate strongly. As a result, when investing in natural gas, it is wise to buy large amounts when the cost price is low. However, this does not mean that you need a large start-up capital.
When the price of natural gas is exceptionally low, you can buy a lot at once without having to invest a huge capital. By applying leverage, it is possible to open a large position on natural gas with a small investment.
However, it is important to know that if you invest in natural gas contracts you always invest actively. This means that you should permanently keep a close eye on the price movements of natural gas. Especially if you want to sell your natural gas directly when an explosive price increase occurs, you must follow the price of natural gas closely!
Also use a stop loss. With a stop loss, you can automatically sell the natural gas contracts or shares at a certain value. This way you avoid losing your entire investment.
In this section we discuss in which natural gas shares you can invest. Before you buy stocks, you must examine the company’s future plans carefully.
In the distant past, Gazprom was one of the largest companies in the world. After the stock market crash of 2008, the company has slumped considerably. Nevertheless, Russia’s Gazprom is still one of the biggest players in the gas market. When you invest in the company, it is important to remember that they are also active in the oil market.
The Chinese market is the most important for the company. In 2014, the company signed a 30-year contract to supply 38 billion cubic meters of natural gas to the red giant. The company has access to 18% of the world’s reserves, so the delivery will not be a problem.
Nevertheless, it is important to keep a close eye on political stability. Russia has used access to gas as leverage in the past. This kind of instability can put pressure on the profitability of a company like Gazprom.
EQT Corporation is the major active player in the natural gas sector in America. Through the reserves that EQT has access to, the company can supply more than 10 million households with natural gas for 15 years. The company not only supplies natural gas: EQT is also active in the construction of pipelines. Due to the size of the company, an investment in the natural gas sector through EQT is fairly stable. However, there is not as much room for growth as there is for smaller, more speculative companies in America.
Antero Resources deals with a special form of natural gas: natural gas liquids. This form of gas is easier to transport and is usually traded at a higher price. They are in 600th place in the Fortune 500 list, so the company at least shows that they have taken a strong position in the market.
Uncertain economic climate
In an uncertain economic climate many forms of investments involve high risks. However, investing in natural gas can work out well in an uncertain economic climate. Investing in natural gas is increasingly seen as an exciting option for investors who want to vary their investments. In addition to investing in gold, investing in natural gas too is experiencing considerable growth.
This growth is partly because an investor who buys natural gas for $1.80, has the potential to at some point sell his natural gas for triple that amount. The frequent market fluctuations make it interesting to actively trade in natural gas. However, you must realize that you are investing with money that you may not see a return on immediately. After all, no one can predict when the price of natural gas will rise again.
Strategy: protection against a weak dollar
Some people use natural gas to hedge against a weak dollar. When the dollar price is low, you see the price of natural gas rise. Companies can then buy cheaper natural gas, which is beneficial for the price. By including natural gas in your portfolio, you can protect yourself against a low dollar price.
Incidentally, there is a maximum increase in the price of natural gas. Consumers often still need gas to cook or to heat their homes. However, many companies have the ability to switch between different sources of energy. If the price becomes too high, they will be inclined to opt for alternative energy sources. This can put pressure on the price of natural gas again.
What is the current price of natural gas?
Below you can see the current CFD price of natural gas. With the buttons, you can open a trade immediately: