Natural Gas Trading Strategies
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I know this chapter on Natural Gas is coming in late; we should have discussed this much earlier, probably when we discussed Crude oil. Unfortunately, I missed doing this; but anyway, better late than never! We will discuss Natural Gas in this chapter, and with that, we will conclude this module on Currencies and Commodities. As usual, let us start our discussion with some background information, history, and how natural gas is extracted.
Natural gas is a naturally occurring, non-renewable, hydrocarbon gas mixture, primarily consisting of methane. Natural Gas is a fossil fuel and is used as an energy source. Natural gas has many applications in our day to day lives including electricity how to trade natural gas inventory processheating, and cooking.
Besides, natural gas also has a wide variety of application in the fertilizer and plastics industry. Apparently, way back inB. The Greeks believed this was the Oracle at Delphi, and a temple was built. This has to be the first ever reference to Natural Gas. By the way, do you wonder how natural gas can seep through the land surface? Well, have a look at this picture of natural gas seeping from ground and catching fire —.
The Chinese discovered Natural Gas around B. However, the first commercialized application of natural gas occurred in the Great Britain. Aroundthe British used natural gas produced from coal to lighthouses and streets. The question is — how and why is natural gas present there? Millions of years ago, when plants and animals died, the remains were buried in sand and silt.
The buried remains mixed further with sand and silt, got buried deeper, and decayed further. Pressure and heat converted these materials into coal, oil, and natural gas. This entire process panned across millions of years. In some places, natural gas moved into large cracks and spaces between layers of overlying rocks, while in other places natural gas just settled on the porous surface of rocks.
Natural Gas, in its original form, is colorless, odorless, how to trade natural gas inventory tasteless. Now, practically this how to trade natural gas inventory be an issue — imagine if natural gas leaks and spreads, there is no way one can identify its presence in the atmosphere, which is a highly hazardous situation. The search of natural gas is how to trade natural gas inventory similar to the search for crude oil.
Geologists identify land parcels which are likely to contain natural gas. Sometimes, these land parcels are on the surface of the earth and sometimes this can be offshore, deep inside, on the ocean floor.
Geologists use the seismic surveys to identify the right place to drill in order to maximize the probability of finding natural gas. If the site seems promising, then an exploratory well is drilled to investigate further. Further, if the economics favor then more wells are drilled and the natural gas is extracted from the ground.
India is the 7th largest producer of natural gas in the world, accounting for nearly 2. The bulk of the natural gas produced in India is used towards power generation, industrial fuel, and LPG. A large chunk is also used in the fertilizer industry as feedstock.
Needless to say, this discussion on Natural Gas — production and application can get quite how to trade natural gas inventory, but I guess we are good to stop here, considering we are looking at Natural gas from a short-term trading approach. Amaranth Advisors, established aroundwas a Free demo binary options account no deposit multi-strategy hedge fund operating from Greenwich, Connecticut.
The fund had its interest in various hedge fund strategies ranging from convertible bonds, merger arbitrage, leveraged assets, and energy trading. Hunter had previously gained a lot of a popularity for his energy trading strategies mainly natural gas at Deutsche Bank. Apparently, he made few millions of dollars as annual bonuses.
His success continued when he joined Amaranth to head the energy desk — where he traded natural gas for obvious reasons. At this stage, I have to mention this — although an international commodity, natural gas trading was highly vulnerable.
Any midsized hedge fund could easily corner the market by taking positions in few thousands of contracts. This made Amaranth one the largest hedge funds operating in the natural gas market. Risk management sits above all and has the authority of question every aspect of your trade. The contract introduction and expiry logic is quite straightforward, have a look at the table below —. Every 4 months a new contract is introduced. For example, the January contract was introduced in Octand this contract expires on 25th of Jan Here is something that you need to know — although, Natural Gas in an international commodity, its spot price in India is also dependent on how the domestic demand and supply situation pans out.
And with this, folks, we will conclude this chapter on Natural Gas and this module on Currencies and commodities. We hope you liked reading this module as much as we enjoyed writing it for you. Really Informative and in very simple language for anyone to understand… Really appreciate the work.
When is the PDF copy for this module how to trade natural gas inventory up? Have you checked out the 3 part series on Commodities? Have a look at this — http: The modules are great for a beginner. Thanks for your how to trade natural gas inventory Exchanges stipulates limits on positions of client and trading members. Check this for limits on currencies — https: Sorry to know that Kumar.
Most people trade commodities either intrday or at the most hold the position for a day or 2. I guess from that perspective, knowing the contract specs well plays a key role. Sir, Can we trade currency in internation market mean after 5: There are hardly any trading volumes there Raj. Please start from Module 1chapter 1 — http: Sir, i am a final year B.
FRM if you want to get into Risk mgmt. No other certification may be worth it. Please check the procedure here — https: I have no how to trade natural gas inventory about that course, you may want to do some research before joining the course. The pdf file is corrupt and gives all sorts of error. It is no corrupt download fault. The structure of pdf itself has errors, When trying to open or combine pdfs it gives errors about fonts extraction and number out of range.
I knew nothing about the market. I loved it so much that I ended up drawing all the cartoons in my book. Drawing acted as a good break while reading. As per your explanation above about having a bullish outlook on natural gas during times of bad weather and hurricane approaching, the natural gas prices was expected to rise given Hurricane Irma is likely to hit US mainland on Sunday. I want to know the reason for the same. Maybe there are some other fundamental factors at play with respect to IRMA.
One really has to investigate further. What happens if my commodity margin sufficient exceeds the required margin available in my account. Will it be automatically squared off at the closing time? I have bought the commodity as NRML position. If so i have 3 positions, which one will be squared off? Well, have a look at this picture of natural gas seeping from ground and catching fire — Source: Daily mail online, UK. We will move ahead to discuss the contract specification. Anyway, here is what happened post-April — Hunter noticed a surplus inventory of natural gas in the US, which would drive the price of natural gas lower in the US Inventory of Natural gas, unlike how to trade natural gas inventory, cannot be easily moved to cater to supply-demand pressures He also expected a harsh winter or perhaps a hurricane to ensue, which quite obviously would exert pressure on the supplies and push the price of Natural gas higher Apparently, Hunter had profited when hurricane Katrina and Rita had hit the US coastlines in He set up complex strategies at multiple points across multiple contracts to benefit from his staggered point of view.
Respect risk and risk respects you back, ignore it how to trade natural gas inventory it will how to trade natural gas inventory you the corner. For this reason, we will dedicate the whole of next module to Risk and trading psychology. For now, let us proceed to discuss the contract specs of Natural Gas. The contract introduction and expiry logic is quite straightforward, have a how to trade natural gas inventory at the table below — Every 4 months a new contract is introduced.
Given this, the following events have a significant impact on the natural gas prices on NYMEX and therefore MCX natural gas futures — Natural Gas inventory data — increase in inventory tends to lower the futures price and decrease in inventory data tends to increase the futures price US weather conditions — the US is the biggest natural gas market, so US weather conditions really matter. A harsh winter in the US leads to more natural gas consumption as people use natural gas to heat homes and therefore the inventory is consumed rapidly leading how to trade natural gas inventory increasing in price.
Hurricane in the US — Hurricane besides disrupting the weather conditions also tends to disrupt inventories. Hence, if you see a hurricane approaching the US coast, be prepared to go long in Natural Gas or at least, do not short natural gas contracts The price of Crude oil — Natural gas is not only a cleaner fuel compared to crude but also costs much lower.
Historically, the two contracts are highly correlated, although the correlation is not holding up over the recent few months. So, next time you are trading natural gas, make sure to check how the sun is shining in the US!
Onwards to Risk and Trading psychology! Natural Gas has been in use since ancient times. Primary use of natural gas includes power generation, heating, cooking etc.