Investments in Natural Gas Commodity Futures - dummies

Investments in Natural Gas Commodity Futures

By Amine Bouchentouf

The most direct method of investing in natural gas is to trade futures contracts on one of the designated commodities exchanges. The Chicago Mercantile Exchange (CME), the exchange for energy products, gives you the option to buy and sell natural gas futures and options.

To trade futures, you need to have a futures account with a designated broker, known as the futures commission merchant (FCM). After you open a futures account, you can start trading these derivative products.

The natural gas futures contract is the second-most popular energy contract on the CME, right behind crude oil. It’s traded under the ticker symbol NG, and it trades in increments of 10,000 Mmbtu. You can trade it during all the calendar months, to periods up to 72 months after the current month.

The CME offers a mini version of this contract for individual hedgers and speculators. Check out the CME’s natural gas section more on this contract.

Trading natural gas futures contracts and options isn’t for the fainthearted. Even by commodities standards, natural gas is a notoriously volatile commodity, subject to wild price fluctuations. If you’re not an aggressive investor willing to withstand the financial equivalent of a wild roller-coaster ride, nat gas futures may not be for you. This historical overview of the price action of the CME natural gas contract illustrates the volatility.

[Credit: Source: U.S. Department of Energy]
Credit: Source: U.S. Department of Energy