Why would I purchase a Natural Gas ETF when I can buy a natural gas index mutual fund?

You certainly can buy a gas mutual fund from a fund family. But the annual management fees of doing so will be more expensive than the management fees of an ETF. Plus if you trade a natural gas index fund, you will only be able to buy and sell at the closing price at the end of the day. What if some news come out that you think will cause natural gas prices to rally? If you buy an index fund, most of the move will be made that day while you’re sitting on the side waiting to buy at the end of the day. Better to be able to react immediately and buy instead of watching other people make money.

Can Natural Gas ETF beat the market?

Natural Gas ETF provide an easy way for an investor to trade various segments of natural gas. There are gas ETFs that mirror the natural gas futures market and there are Natural Gas ETFs that attempt to follow the prices of various gas exploration companies for example. Those ETFs take a basket of stocks to give you diversified holdings in natural gas.

How and where do I buy them?

You can buy or sell them as you would any stock at your brokerage firm. Don’t have an account to trade stock? You can visit Sharebuilder and buy ETFs for $4 to open an account with as little as $0. Thats right, there is NO minimum amount to open an account. Visit the site for more  details.

ETF’s are they insured?

ETF’s are tightly regulated by the Securities and Exchange Commission (also known as the S.E.C.) The S.E.C. examines each ETF that is created and brought to market. The Depository Trust Clearing Corporation is in charge of the clearing of trades. Their job is to ensure that the stock certificates involved in each trade settle in the proper stock account each night.

As in any stock, there are underlying risks involved. That is up to you the trader if the risk profile matches yours. You are ultimately responsible for your trading decisions.

Why not just buy individual Natural Gas Stocks?

You can, but most investors prefer to be diversified when they invest. Depending on the size of your investment portfolio, you will not get the diversification that you need. You may be only to purchase a few stocks but with a Natural Gas ETF you can buy several for the same amount of investment. Plus if you traded say the United States Natural Gas Fund, you get to trade NYMEX natural gas futures without opening a futures account or exposing yourself to that much more risk. You could buy a few shares instead of having to put up the margin to trade the natural gas futures.

Are there ETFs for Propane?

Despite the demand and usage of propane gas, there are currently no propane gas ETFs at the present time.

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You may read in the paper or hear on the news about the wild price swings in natural gas. Some may view it has highly risky while others see it as a tremendous opportunity to profit. Which type of investor are you?

There are several ways to trade natural gas. I find the easiest way is by using the Natural Gas ETF. Why? There are several types of Natural Gas ETFs to use depending on your outlook and risk tolerance.

If you want to trade natural gas futures, there is an ETF for that. Instead of opening a futures account and hoping to qualify for a futures account, you can easily trade the United States Natural Gas Fund. By buying a few shares of the fund, it allows you to mirror the price movements of the natural gas futures on the New York Mercantile Exchange.

You also have to ask yourself how do you trade? Do trade technicals or fundamentals or perhaps a little of both.

A technical trader is one who uses price charts. The technician or chartist tries to see patterns in past price movement to predict the future prices of natural gas. Some use short-term charts like a 5-minute chart or a 30-minute chart. Others may only use a daily chart to track prices. Still other like a longer term view and look at weekly and monthly charts. If you look at 5 or 30-minute charts, you are generally a day trader. You are trading hoping to scalp a few dollars here and there. This can be less risky since your positions are only for a few minutes. You don’t have to fear about a war starting overnight or a refinery fire effecting prices. These are usually quick swift trades.

Trading with a longer time frame can yield great returns (witness someone like Warren Buffet) but position trading takes a lot of patience to trade. You must be able to sit tight and not get faked out of your position. Be prepared to be in the trade for the long haul.

A fundamental trader is one who trades based on the underlying supply and demand of natural gas. This trader stays on top of the number of rigs being used to drill for natural gas. He will also have an eye out on the weather and follow the weekly natural gas storage report that the government put out each week. This trader isn’t really concerned about the ‘squiggly” line of a price chart. He determines his trading position on supply and demand.

Hopefully this article help you decide the kind of trader you want to be.

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