Natural Gas is a fossil fuel that is colorless, shapeless, and odorless in its pure form. It is a mixture of hydrocarbon gases formed primarily of methane, but it can also include ethane, propane, butane, and pentane. Natural Gas is combustible, clean burning, and gives off a great deal of energy.
Around 500 BC, the Chinese discovered that the energy in Natural Gas could be harnessed. They passed it through crude bamboo-shoot pipes and then burned it to boil seawater to create potable fresh water. Around 1785, Britain became the first country to commercially use Natural Gas produced from coal for streetlights and indoor lights. In 1821, William Hart dug the first well specifically intended to obtain Natural Gas and he is generally regarded as the “father of Natural Gas” in America.
There is a vast amount of Natural Gas estimated to still be in the ground in the U.S. Natural Gas as a source of energy is significantly less expensive than electricity per Btu (British thermal unit). Btu is a traditional unit of energy equal to about 1.055 joules or approximately the amount of energy needed to heat one pound of water.
Natural Gas futures and options previously traded on the New York Mercantile Exchange (NYMEX) until 2008 when the CME group acquired NYMEX Holdings and now trades on Globex. The market opens at 5:00 PM CT and closes the following day at 4:00 PM CT, Sunday through Friday. The market closes Friday afternoon and re-opens Sunday evening.
Additional Natural Gas contracts also trade on CME Clear Port, a set of flexible clearing services open to OTC market participants. As well on the Intercontinental Exchange (ICE) after acquiring the International Petroleum Exchange (IPE) in 2001.
The Natural Gas futures contract calls for the delivery of Natural Gas representing 10,000 million British thermal units (mmBtu) at the Henry Hub (a distribution hub) in Louisiana, which is the nexus of 16 intra-state and inter-state pipelines. The most common contract symbol is NG.
The contract is priced in terms of dollars per mmBtu. The futures contract price quotation is $0.001 per mmBtu. The previous settlement price (November 23, 2012) was 4.034 and reads as four dollars and three point four cents. The next price movement or “tick” after 4.034 upward is 4.035, followed by 4.036. Each tick is $10. A full dollar move, from 4.034 to 5.034 for example, is $10,000.
The performance bond or initial margin requirement to initiate one futures contract is $2,475 (as of November 11, 2015). To control that futures contract going forward the maintenance margin becomes $2,250 (as of November 11, 2015).
At the commencement of each trading day, there are price fluctuation limits in effect for each contract month of $1.50 per mmBtu above or below the previous day’s settlement price for such contract month. If a market for any of the first three (3) contract months is bid or offered at the upper or lower price fluctuation limit, as applicable, on Globex it will be considered a Triggering Event which will halt trading for a five (5) minute period in all contract months of the NG futures contract.
The futures contract month listings are the current year plus the next twelve years.
Trading of any delivery month shall cease three (3) business days prior to the first day of the delivery month. The Last Trading Day for the January 2013 Natural Gas futures contract is December 27, for example.
Be aware the Energy Information Administration (EIA) typically releases a weekly Natural Gas report on Thursdays at 9:30 AM CT.
Visit https://www.danielstrading.com/ for additional contract specifications and market information regarding the Natural Gas futures market.
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