When you buy futures, you are buying the right to purchase a certain quantity of a commodity at a set price. You pay a premium for that purchasing right. Natural gas futures are sold in quantities of 10,000 mmbtus .
This means that if you actually act on your future you will purchase 10,000 mmbtus of natural gas. However, very few people actually purchase the product. They are merely trading on the futures.
Trading in futures is a great way to make, or lose money. If the value of the commodity goes up, then you will make money. However, if it goes down, then you will lose money. There is always a winner and a loser with future trading.
Natural gas has been down over the several years, but many feel that it is on the way up due to the interest in cleaner energy sources to replace oil. If you feel that the price of natural gas is going to go up, then you will want to go long (purchase) natural gas futures. However, if you feel it is going to continue to go down, then you would go short (sell) the futures.
The New York Mercantile Exchange (NYMEX) is the place to trade natural gas futures. These futures are quoted in dollars and cents per mmbtus. To buy or sell these futures, you will need to open up an account with a brokerage firm. Many online brokerage firms do not trade in futures so you may need to work with an actual broker. OptionsXpress is one place that you can open an online account to trade in natural gas futures.
You can make a lot of money very quickly since each future contract represents 10,000 mmbtus of natural gas. If the trading price were 5.150 per mmbtu, then the value of your investment would be $55,150. You would only need to front $8,775 since you can trade on margin. If the price went up to 6.0665 then you would stand to make a profit of $5,515. The return on your investment would be 63%. You can see however, that it may go the other way and you would lose that much money. Future trading is only for those who can afford to lose money since it is just as likely that you will lose your money as well as to make it.
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Futures Contracts, Natural Gas
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