Natural Gas is one of the commodities which trade in the commodity market, found alongside coal beds and other fossil fuels. Energy traders who are trading in natural gas in commodity market know that the price of natural gas fluctuates time to time. However, the prices are determined by the global supply and demand for this physical commodity. Consisting mostly of methane, the natural gas mostly uses for commercial and industrial applications. Apart from this, it is used to heat homes and generate electricity. It is the cleanest burning fossil fuel which emitted less carbon dioxide (CO2) in comparison of coal and oil. As a result, the prices have skyrocketed in past years. It is because; natural gas is recognized now as an alternative of oil and coal.
Due to which, the demand for this commodity is continually rising, in believing to meet the demand. But, investing in commodities: Natural gas on a futures market is still complicated for most retail investors. Even the day traders who trade in natural gas don’t assess the “real price” of the physical commodity. Instead, they take the benefits from the price fluctuations in the natural gas commodity.
Day trade Natural Gas in Commodity Market
When we say day trade natural gas in the commodity market, we mean speculating natural gas on its short-term price movements. If you are planning to day trade in natural gas then first thing you need to consider is all physical goods of natural gas isn’t handled or taken possession of, rather all are trade in commodity exchanges and all the trading transactions take place through an electronic trading account where you can see all your profits and losses in your transactions.
So, if you are planning to trade natural gas then the very first thing you need to perform is to have an online commodity trading account. None of this matter if you already have one but if you don’t then you can check out the below steps involved the method of opening a commodity trading account online.
Open Commodity Trading Account Online
- Select a Stockbroker – It is the very first and critical step to open a commodity trading account in order to day-trade natural gas in the commodity market. While choosing the stockbroker is well-informed and customer-savvy so that the energy trader may not end up losing a lot of money. Also, look for the types of charges which vary with a broker to broker. These charges could be brokerage charges, platform fee, cleaning fee, and transaction charges etc. Another thing you need to consider is the kinds of services your stockbroker provides.
- Fill out the Form – After you decided on the stockbroker or brokerage firm you need to fill up the application form of the brokerage firm to open an online commodity trading account with your details such as age, years of experience in trading, name, and so on. Sometimes, your company may assess your financial condition, risk appetite, and personal experience.
- Documentation – There will be a documentation procedure which required you to upload necessary documents like PAN Card, Aadhar Card, Cancelled Cheque, and Income/Salary Statement etc.
- Verification – Once you finished submitted the application forms, necessary documents, member-client agreement, and all other relative documents with your brokerage firm, they may take 2-3 working days to study and analyze the documents and then come up with a decision whether to approve or reject your application. On approval, you will get the credentials of your commodity trading account.
- Deposit Margin Money – After verification, you can set up your account and deposit the initial margin money which is generally 5-10% of the contract value. In addition to the initial margin, maintenance margin also needed to be maintained by the trader in the account to make sure the trader can pay off in case of huge loss due to adverse price movements.
Now let’s find out the different ways to day trade natural gas in the commodity market.
Trade Natural Gas in Futures Market
There is a number of ways to trade natural gas. One very efficient way is to trade through a futures contract. In the futures market, one can easily trade natural gas like gold, wheat, corn, copper, and oil at a future date under the futures contract to buy or sell natural gas. In intraday trading, you gotta close out all contracts or trades each day. Whatever profit or loss you make, will be based on the price differences of the contract at which you bought and sold it.
Producers and consumers of natural gas can manage the natural gas price risk by buying and selling natural gas futures. Since the demand is increasing by time so anyone who is trading in natural gas can take advantage of global demand for natural gas and rising price.
Natural Gas Futures traded through Multi-Commodity Exchange (MCX) which is listed according to the Contract launch calendar. In India, in MCX the contract duration is of 3 months (MAX.).
On the futures exchange, the price of Natural Gas (NG) fluctuates in 10 paise (0.10 paise) increments. This increment is called “Tick” – it’s the smallest movement in futures contract can make. So, when you trade (buy or sell) futures contract, how many ticks the price moves away from your entry price determines your net profit or loss.
So, the amount you gonna need in our online commodity trading account to day trade natural gas futures contract depends, particularly on your financial broker. Just don’t forget to maintain an amount in your account to accommodate the potential losses. Since you will be day trading natural gas so you gonna need to closed out positions before closing. But, if you decide to hold a position overnight then you are subject to initial margin and maintenance margin requirements, which will require you, have more money in your account.
Hope, this article helped you in a way you expected it to be. Nevertheless, if you have any query or would like to add something then doesn’t forget to mention in the comment section below. We will be happy to answer all your questions.
Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.