Updated on September 10, 2024
Are you going to trade commodities? You might be interested in natural gas trading. It is a highly demanded raw material all over the world. Natural gas is used as both an energy source and a fuel. But it has many more uses. In this article, we will take a closer look at this gas. We will talk about how natural gas can be traded. And we will also explain what factors will affect its price.
Natural gas – properties and use
Natural gas is a raw material composed of a mixture of methane, ethane, trap and butane. The first of the named gases has the largest share in its composition. That is, methane . Specifically between 70-90%. As a result, it does not release as much CO 2 when burned as other fossil fuels. However, this does not mean that it should not harm the environment. Besides CO 2 , methane also belongs to the greenhouse gases.
We obtain natural gas by mining. It is found in deposits either together with oil, black coal, or even separately. The largest producers of this gas are Russia and the USA.
Gas is widely used as a fossil fuel for vehicles, trains and ships. Either in the form of compressed gas (CNG) or in liquefied form (LNG). In addition, it is capable of powering some power plants. It is also used as a source of energy in homes and businesses. Its properties are also used by the chemical industry. But also producers of nitrogen fertilizers. For them, this gas serves as a source of hydrogen.
History of natural gas
Natural gas has probably been known to mankind since the 2nd century. It is possible that the Greek philosopher Plutarch mentions it in his work when he talks about eternal fires. They had a plate in the territory of today’s Iraq. However, humanity did not see the first well, which was undertaken for the purpose of obtaining this raw material, until 1821. This happened in the USA. It was drilled by William Hart and measured only 3 meters. Back then, people only used it for public lighting. However, electricity had the main word at this time.
The situation subsequently changed in the 19th century with the invention of the Bunsen furnace. The principle on which Robert Bunsen built it gave rise to gas stoves, lamps and heating. This stimulated the demand for gas and thus its extraction. Long-distance gas pipelines were built and today gas is already commonly used in households and companies. Gas is also extracted in the Czech Republic. The first wells were drilled here in 1899. However, actual production does not even reach 1% of total consumption.
How to trade natural gas
It is advantageous for small individual traders to trade this raw material through CFD contracts. Why? Because in this way of trading you do not actually buy or sell gas. You don’t have to worry about its transport or storage. And in addition, you can earn not only on the growth, but also on the decrease in its price. Let’s take a look at how trading CFD contracts , or contracts for difference, looks like.
CFD trading
This type of trading is also referred to as CFD trading. You are entering into a contract with your broker. Both of you agree with this contract that, if necessary, you will pay the other party the difference between the purchase and sale price of the given asset. If your estimate of the development of the price level was correct, then the broker will pay you extra. However, if you have estimated the future development of the asset price incorrectly, you will pay the broker extra.
It all boils down to the fact that you are speculating on the future development of the gas price level. Therefore, if you are examining the current events on the market and you find that the price of this raw material should move upwards in the following period, then you will enter a buying position. If, on the other hand, you estimate that the price of gas will decrease, you will enter a short position. Whether you make a profit or a loss on the trade depends only on whether you guessed correctly.
Beware of risks
Just like trading any other commodity, gas trading also involves various risks. Even trading with CFDs does not offer only advantages. The risk in this type of trading lies primarily in the fact that you are trading with financial leverage. It is a tool that will cause your profit to multiply. This way you can earn several times more than you would earn under normal conditions. How many times depends on the amount of leverage you are trading with. That sounds good, right? Be careful, however, that just like your profit, your potential loss will also multiply.
How to begin
It is not difficult to start trading with this raw material. You can easily find an online broker that allows you to trade gas. You can find countless of them. But not all brokers will suit you. Some will bring you more favorable fees. Or other benefits. So choose according to which one suits you the most. Be sure to try the trial demo accounts first. Thanks to them, you will get to know the trading platform of the given broker even before you start trading gas in earnest.
But beware that among all those online brokers you can also find fraudsters. Therefore, do not rush to choose a suitable broker. Find out everything important about it in advance and don’t save on searching for reviews of other traders.
What affects the price of gas
The price of this raw material is of course affected by supply and demand. The fact that there is only a limited amount of this gas plays a role in it. It can therefore be assumed that its price will increase in the future. On the contrary, the discovery of a new deposit suitable for mining would reduce the price of gas.
Another factor that affects the price of gas is the international situation. For example, the imposition of sanctions or restrictions on exports or imports. However, the amount of taxes also plays a big role. The higher the taxes imposed on this raw material, the higher its price. Conversely, with lower taxes, the price of gas decreases.
Natural gas – current online chart
How has the price of gas evolved over time? View the current online chart.
Development of interest in the commodity
Nowadays, gas is one of the indispensable raw materials. It is used worldwide as a source of energy. It lights and heats households, drives vehicles and even drives companies’ factories. Therefore, it is not assumed that the interest in this raw material and with it its price should fall in the near future. On the contrary, in connection with current events in the international field, the current demand for this raw material is high. And its price increases with it.
Natural gas – summary
Gas is a widely traded commodity around the world. It is in demand by industry, but also by individual households. However, there is not an unlimited amount of it. Therefore, it is not assumed that the demand for it should decrease significantly in the near future. However, there are various indicators that could affect demand and price. We can also see this in the current international political situation, when the demand for gas and its price have increased significantly.
