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What are the Best Tips for Natural Gas Investing?

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  • Written By: Patrick Lynch
  • Edited By: R. Halprin
  • Last Modified Date: 24 August 2016
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Natural gas investing is becoming a popular method of earning a second income. Tips when investing include considering Exchange Traded Funds (ETFs) because this involves buying shares in several different companies at once. Purchasing blue chip stock, another alternative, is expensive but shareholders usually earn a quarterly bonus in the form of a dividend. The volatile commodities market can also be explored without having to own shares; Contracts For Difference (CFDs) and spread betting are available for this purpose. These forms of investing are not legal everywhere; the U.S. and some other countries outlaw such practices.

There are a myriad of ways to engage in natural gas investing. In order to reduce the risk, invest in ETFs. Many ETFs have several gas stocks built into the price so a trader’s investment is not dependent on just one or two stocks. Spreading the risk means that even if one or two stocks fail, the others should remain in reasonable shape, thus protecting the investment.

Natural gas investing does not have to involve ownership of shares. CFDs, for example, enable traders to invest in natural gas without actually purchasing the stock of any company. A CFD involves a trader agreeing to invest in a market against a brokerage company. Both parties agree to settle the difference between the trader’s opening and closing position.

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The process of leveraging on CFDs can seriously increase the profits made from natural gas investing. This essentially allows a trader to control up to 100 times his or her investment. This can lead to spectacular gains but traders should be aware that massive losses are also possible.

Leveraging also makes it possible to invest in blue chip companies that would normally be beyond the average trader’s budget. The definition of a blue chip company is one listed in the world’s major stock markets such as the U.S Dow Jones or the United Kingdom’s FTSE 100. These large companies generally pay shareholders a quarterly dividend, although those who invest through CFDs or any other non-ownership method are ineligible for such a payment.

Commodities such as natural gas are notorious for being volatile. This means investors have to be careful when choosing a company in which to invest. Small companies are more affordable but are far more likely to go bankrupt due to the unpredictable nature of the market.

Another method of natural gas investing involves spread betting. The broker takes the role of bookmaker by setting a price for the trader to buy or sell. A stock may be worth 100 points, for example, with the broker setting the spread at 95-105.

If the trader believes natural gas stock will rise in value, he or she will purchase the stock at 105 points a share and hope it rises. Likewise, traders who think the stock is due to fall can buy at 95 points and expect a decrease. Spread betting and CFDs are illegal in certain countries such as the U.S.; ensure this form of investing is permissible in your jurisdiction before attempting it.

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