Energy Trading: How to Trade or Invest in Energy

By | February 5, 2020

There is a lot of opportunity in the energy market for traders and investors but proper knowledge is needed to navigate this volatile market. Note that before trading a particular energy commodity, you should have made diligent research on that market and what news impacts its price and the margin requirements. There are many ways to trade the energy market, so choose the one that suits you. However, China and India will have to make key decisions about the issues of nuclear energy programs, ethanol production, and coal-fired power plants as these decisions could impact the prices of these commodities greatly. The price of energy directly impacts the price of almost everything we consume including the clothes we wear, groceries, devices we use, electronics, and even the gasoline we put in our cars.

  1. The app has a user-friendly interface, which makes it possible for consumers to set the preferred daily maximum cost, and they can either “set it and forget it” or change every day depending their financial needs.
  2. The DOE sees natural gas production averaging 89.8 BCF per day down 3% year over year from 92.2 BCF per day.
  3. Its main features include a strong market foundation and integrity, as well as a high level of transaction reliability and financial security.

They can either be traded on a formal exchange, such as the Chicago Mercantile Exchange (CME), or on an over-the-counter (OTC) basis. The oil and refined products that are traded on ICE are both financially settled and physically delivered. Many of the futures contracts provide the option to exchange the financially settled instrument for a physical transaction delivered to an ICE regulated storage facility. Commodity assets such as crude oil, natural gas, and electrical power are traded around the globe.


As a result, electricity is not commoditized globally the way other markets are. You can’t buy stock in natural gas or oil, but as stock trading is one of the easiest ways for individual investors to trade, it can be a neat way of gaining indirect exposure to the sector. Electrical power generation from renewable sources continues to expand and will compensate for the deficit caused by carbon-based energy sources treading water.

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The most popular energy commodities in the market include crude oil and its derivatives, power, coal, and petrochemicals. Crude oil, coal, and gas (fossil fuels) can be extracted from the earth — they are formed from the build-up of dead organisms including plants and animals subjected to pressure and heat for over a million years. The oil and refined products traded on futures exchanges are financially settled and physically delivered. Many futures contracts provide the option to exchange the financially settled instrument for a physical transaction delivered to an ICE-regulated storage facility. This reflects the futures exchange primarily serving the ‘real’ economy – people who want to take delivery of a quantity of crude as part of their business model.

Where Can I Trade Energy?

However, trading on energy ETFs still brings the common risks of market volatility, as well as slippage and gapping that often occurs within the stock market. Traders should stay vigilant when analysing price charts for this reason, as exchange-traded funds can become just as volatile as regular indices. Energy trading is one of the most popular sectors to trade and invest in, due to the constant supply and demand of energy assets. Crude Oil is perhaps the most traded commodity​​ in the world, and some of the biggest blue-chip companies by market capitalisation are within the energy sector, including PetroChina, ExxonMobil and BP. Each contract requires delivery of 1,000 barrels of WTI crude oil, which is equal to 42,000 gallons. There are 36-consecutive delivery months followed by semi-annual contracts for a couple of years, and then annual contracts for up to 10-years.

Remember, trading with leverage means that your potential profits or losses are magnified to the full value of the position – not just the deposit you originally paid. Later in their development, they have mostly fibonacci pattern forex fixed costs such as salaries, rent, and debt servicing. India and other developing nations in Asia, the Middle East, and Africa will require factories to supply metals, machines, and manufactured goods.

Before you trade, AskTraders.

When share dealing, you buy and own the shares, so you aren’t exposed to this risk. You should also keep in mind that past performance isn’t necessarily an indicator of future returns. Trading energy commodities allows you to trade the underlying price of the different energy commodities directly.

Electricity is a local product that is actively traded in the United States. The CME provides several active electricity contracts based on specific locations throughout the United States. Each electricity contract describes the hub where it will be delivered and a specific wattage that will be provided each day. These include those based on fundamental analysis and evaluating supply and demand or measuring one energy product versus another. A complementary approach uses price data and metrics in the form of technical analysis. Solar start-ups Azuri Technologies, Off-grid Electric, and Mobisol are producing low-cost solar panel solutions for off-grid areas in rural Africa (Azuri Technologies, 2017).

However, because electricity cannot be efficiently stored in bulk for long periods, the grid must be balanced given changes in demand. Fossil fuels such as oil, gasoline, heating oil, gas-oil, residual fuels, coal, and natural gas have active to relatively active futures markets. A futures contract is the obligation to either buy or sell an asset at a date in the future. The two most active energy exchanges are the Chicago Mercantil Exchange (CME) and the Intercontinental Exchange (ICE).

Indeed, the system can use P2P energy trading as a proper strategy in serving the energy demand that increases the system’s flexibility in balancing energy. All aforementioned strengths have converted P2P energy exchanging markets to one of the undeniable ways of realizing the goals of future modern energy grids and facilitating the grid modernization process. Some investment banks trade commodities and related contracts, focusing on metals and on energy products such as oil, natural gas and electricity. A number of investment banks trade physical commodities in addition to derivatives, and some have even owned power plants and other energy related facilities. Within the past 15 years, many large investment banks have conducted commodities trading as a substantial part of their business operations, including J.P. However, a number of banks have either exited or substantially reduced their commodities-trading business.

This means that it is easier to buy and sell your commodities in the spot market. 1) Access to real-time pricing information — When you trade in the spot market, you have access to real-time pricing information. This means that you can make informed decisions about when to buy and sell your commodities. However, while they pay large dividends and have low risk, they probably have less potential upside than trading electricity futures in high-growth and less regulated regions of the world. There are several ways to gain exposure to electricity, and traders should consider the factors that move each of these instruments. Heavy rain and snow can provide water for hydroelectric power generation, while strong winds can provide a cheap source of fuel for wind turbines used to generate power.

In this analogy, the driver would be the generator, the highway system would be the grid, and whoever the driver is going to see would be the load. The price would be considered as the time it takes you to get to your destination. Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas’ experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.

Energy markets are an organizational and economic mechanism that ensures the functioning of the sphere of circulation of energy resources, organized according to the laws of commodity production. Energy resources, representing carriers of various types of energy, define the specific character of social relations subject to energy. Energy trading involves the buying and selling of various energy commodities such as; crude oil, natural gas, wind power and electricity. This form of trading remains popular, as frequent fluctuations in price and volume can create numerous trading opportunities throughout each trading day. Smart grid technology, more efficient natural gas-fired power plants, and fuel-efficient cars are some of the positive innovations that could bring about a new revolution in energy efficiency.

It’s forecast that by 2035, 32% of global energy demand will be met by this sector, with that percentage moving up to 50% by 2050. Investments in oil and gas projects are projected to stay stable in absolute terms. However, that sector will represent a smaller proportion of total demand; their share of the global energy investments total is projected to decrease from 54% in 2021 to 36% in 2035. For supporting local energy producers, the incentive mechanism proposed to provide opportunities for future sharing economy landscape in DLT empowered P2P local energy markets (Cali and Çakir, 2019). The production and delivery of modern forms of energy, and especially electricity, represents one of the major challenges the world faces today—especially for the developing countries. Over the next six months, details about Enron’s collapse began to emerge, and the image of energy trading companies became badly tarnished.