How to trade Natural Gas mini contracts

Good things come in small packages, which is true of the for the Natural Gas mini contracts. Natural gas is an essential commodity that is widely used across industries such as power generation, fertilisers, petrochemicals, etc. As with other commodities, natural gas is also traded on the Multi Commodity Exchange of India Ltd (MCX).

What are Natural Gas mini contracts?

• Natural Gas mini contracts are futures contracts that are traded on MCX.
• The mini contracts are a smaller version of the regular futures contracts and have a smaller lot size.
• The lot size for the recently launched Natural Gas mini contracts is 250 MMBtu, while the lot size for regular futures contracts is 1250 MMBtu.
• The tick size of the mini contracts is ₹0.10. Thus, a price movement of ₹1 in the Natural Gas mini contract results in a profit or loss of ₹250 per lot.

Mini Natural Gas Futures vs. Regular Futures

• The key difference between mini Natural Gas futures and regular futures is the lot size.
• Mini Natural Gas futures have a smaller lot size compared to regular futures, making them more accessible to retail investors.
• Mini Natural Gas futures also require a lower margin compared to regular futures, making them a flexible option for traders.

How do Natural Gas Mini Contracts Work?

• Natural Gas mini contracts work like any other futures contracts.
• A trader can take a long or short position on the Natural Gas mini contract by buying or selling the contract.
• The trader needs to deposit a margin amount to take a position in the contract.
• The margin amount varies based on the volatility of the underlying asset.

How to Trade Natural Gas Mini Contracts on Upstox

• To trade Natural Gas mini contracts on Upstox, you need to have an Upstox account.
• Log in to your Upstox account
• Search for “‘NATGASMINI FUT”’, you will find a list of available contracts.
• Choose the contract expiry date on which you would like to trade. and the lot size.
• Place your order and execute the trade.

Benefits of Trading Natural Gas Mini Contracts

• Lower margin requirement: Natural Gas mini contracts are 1/5th the size of regular contracts. Hence the margin requirements are correspondingly lower. At the current rates, Natural Gas mini contracts have a margin of about ₹.20,000, making them a cost-effective way to trade Natural Gas.
• Flexibility of trading: With Natural Gas mini contracts, traders can customise their trading positions based on risk management rules. Smaller lot sizes give traders more flexibility in terms of position sizing, making it easier to manage their portfolios.
• Exiting the position: Natural Gas mini contracts come in handy when traders want to book profit or exit their positions partially. For example, if a trader holds a position of 1,250 MMBtu of Natural Gas mini, they can easily exit 500 MMBtu and continue holding the remaining 750 MMBtu. This would not be possible in a regular contract which is of 1,250 MMBtu.

Factors Affecting Natural Gas Prices

Source

• Inventories: Natural gas inventories, which are released every week by the Energy Information Administration (EIA), provide insight into the natural gas held in underground storage.
  More than expected inventories -> Weak demand -> Bearish for Natural Gas prices
  Less than expected inventories -> Strong demand -> Bullish for Natural Gas prices
• Weather conditions: Weather conditions in US and Europe, especially during winter, can significantly impact natural gas prices. As natural gas is commonly used for heating, colder temperatures can increase demand and prices.
• Geopolitical tensions: Geopolitical tensions and conflicts in and around natural gas-producing countries can affect supply and lead to price fluctuations. For instance, natural gas prices had hit a record high during the Russia-Ukraine war. This is because Russia is the second largest natural gas producer in the world.

With Upstox, trading Natural Gas mini contracts is easy and convenient. So, if you're ready to take advantage of this opportunity, open an Upstox account today and start trading Natural Gas mini contracts!