Volatility is one of the vital factors that make natural gas trading an ideal option for the investors and traders out there. It is important to note that there can be several factors affecting the prices of natural gas and a trader should stay updated with these factors in order to make a sound decision. These factors can vary from weather conditions in a particular location to the supply and demand of natural gas. Before further ado, let’s get started with the basic of natural gas trading and how does it work.
You might be wondering “why should I trade natural gas?” Is it any better than the regular commodity trading? What profits can I expect? First of all, natural gas is one of the super famous trading commodities among day traders. Have you ever invested in crude oil, gold, and silver? Well, the good news is natural gas trading involves the same strategies as crude oil or gold trading. Primary and technical analysis can be a useful strategy to stay informed with the current market condition of Natural gas and make a better trading decision. Similarly, the traders must conduct thorough research on the factors that have an impact on the prices of this commodity. Other than that, it is imperative to know the major manufacturers of natural gas (which, in the current times, are Royal Dutch Shell, BP, and etc). This post will cover the fundamentals of natural gas trading, it’s working, and some advanced strategies that can help traders make better strategies.
Are you planning to invest in natural gas commodity? As long as you make the right strategies and conduct proper research, you are going to make a good profit from this commodity. Let’s have a look at some important tips on how to trade natural gas:
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Know the factors that affect Natural gas price
Just like other products on the market, the price of natural gas is mainly influenced by the current supply and demand for this commodity in the marketplace. The increase in the production and supply of natural gas automatically decline its demand whereas the decreased supply of the commodity leads to heightened price. Here are the four major aspects that alter the demand and supply of natural gas:
Weather – Abnormal weather conditions have a negative impact on the demand and supply of natural gas. On the contrary, a favourable climate can increase the products’ demand and prices.
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Storage – Another factor that affects the price of natural gas is the supply of this commodity in storage. If there is a deficiency of natural gas in storage, the price will ramp up. On the other hand, the surplus commodity in storage leads to increased supply and lower prices.
Alternatives – Economics suggest the prices of substitute products have a great influence on your product’s prices. The substitute for natural gas, specifically the more eco-friendly solutions like solar and wind power, can impact natural gas prices. As the focus of the people is shifting more towards “going eco-friendly”, the demand for its alternatives may increase in the future.
Economic Growth – With the development of an industrial sector in an economy, the prices of the natural gas will go up. This happens because the demand for natural gas will rise.
The accurate natural gas strategy involves paying attention to the chief producers of natural gas in the world. As discussed above, the development of an economy leads to a rise in the demand for fertilizers, energy sources, commercial and industrial goods/services, and other products. Hence, the growth of an economy increases the price of natural gas as a more commercial and industrial sector will need the commodity.
In the current times, Russia and the United States are the major consumers of natural gas. They hold a significant amount of this commodity. It is important for traders to keep an eye on the natural gas consumption and production in these countries to make a better trade analysis.
Also Read: 5 Surprising Crude Oil Facts You Must Know
Fundamental and technical analysis is the best possible way to know the past trends of natural gas trading. Note that the price of natural gas is likely to change in a recurring pattern. It mainly happens because of the weather condition. Natural gas prices are likely to be more in summer and winter months, while the same declines in other months. You can say that its price pattern is cyclical by nature, making it easy for traders to predict the prices of this commodity ahead of time.
These were the top strategies that can be used to make an effective trading decision. Follow these tips before getting started with natural gas trading. Good Luck!
Also Read: Strategies for Trading the Gold-Silver Ratio
