Investing in the natural gas market is very easy when using natural gas ETFs. This article will describe some ETFs and their advantages over mutual funds.
What is an ETF? ETF stands for exchange traded fund. These are usually a basket of stocks that try to match the return of a chosen index. These ETFs can be very specialized in different segments of the market. A natural gas ETF will be made up of a basket of natural gas stocks.
The largest Oil & Gas Exploration and Production ETF is the SPDR S&P oil & Gas Exploration & Production ETF. Ticker symbol XOP. This ETF will invest in stocks that are related to natural gas exploration and production.
Another large ETF is the PowerShares Oil & Gas Services Portfolio. This natural gas ETF invest in stocks that derive most of their income from equipment and services related to natural gas.
If you would like to invest in natural gas directly, the United States Natural Gas ETF is perhaps the largest natural gas commodity ETF you can trade. This ETF invests in the spot month futures contract traded on the New York Mercantile Exchange. This fund will also trade natural gas futures on the ICE exchange and will also trade swaps and OTC gas. This fund does not use leverage when trading futures, so no worries regarding margin calls.
ETFs are traded much like stocks. That means you can enter the same types of orders that you do for regular stocks. You can enter buy and sell orders at the market or on limits. You can also enter stop loss orders too. For the more advanced trader, you can short an ETF and some even have options you can trade.
This gives you a great advantage over mutual funds. This is because a mutual funds price is set at the end of the trading day. You need to wait until the market has closed in order to learn the net asset value of the fund and find out your price.
