Energy Trading Defined and Explained

Energy Trading Defined and Explained

The number of hedge funds with energy trading strategies doubles yearly according to Forbes magazine and is now an important part of many overall trading mixes.

The 130 year old New York Mercantile Exchange, Inc., is the world’s largest commodity futures exchange for energy products.

Energy Trading

Oil has always been dominated by mature companies – Exxon, Mobil, BP, Amoco, Shell, Chevron, Texaco, and Total, Elf – who engage in trading as an ancillary service to their core businesses, and so their goal is often to stabilize external instability in their business. However, traders can still benefits from both trends and volatility swings in the energy markets as they understand the markets themselves. Most natural gas trading has tended to be concentrated in certain countries and by a smaller community of trading entities than oil and this energy sector has grown in popularity with individual traders.

Energy Trading Strategy

Energy trading is much faster and done in more volatile markets than other forms of trading. In addition, every experienced trading manager knows that, left to their own devices, most traders will in fact lose money. Having an Energy trading system or energy trading software in place is important in this market. The frontier of energy trading remains at the point where natural gas, LNG, oil, and electricity markets converge. Oil and gas trading are now mature businesses. LNG and electricity trading remain new and challenging and remain attractive to energy traders.

Energy Major Indicators and Indices

According to NYMEX, Energy futures contracts are available for trading for many months in the future. As a practical matter, the most actively traded and volatile contract months are those that are within a few months of a contract’s expiration. As the energy futures’ expiration date draws closer, volume often picks up as activity in the futures market more closely resembles activity in the cash markets for the underlying commodity.

Energy Trading Advice

What is the best way to earn money in the Energy market? Some traders like to keep track of market fundamentals. Is the weather too hot or too cold? Are there reports of production shortages or surpluses? Are sales brisk or stagnant? Such developments in the underlying markets are often indicators of how prices may move in the energies market future.

Other traders study the technical reasons for price movements by using computer programs and examining charts of the market’s performance for clues as to whether a buying or selling trend can be expected to continue or is due for a reversal.

In either case, having the right tool for the job is critical. Energy trading software can be used to augment an existing approach by supplying an inter-market perspective. The key to an Energy market trading system is itsability to forecast moving averages. One of the better Energy market trading software products is VantagePoint trading software that will help “see” what is likely to happen in the energy market before other traders (using only single-market analysis) catch wind of it.

Common Energy Products:

Trading Energies with VantagePoint Software

Since 1991 VantagePoint Software has been applying Artificial Intelligence to forecast market trends with up to 87.4% accuracy. With more than 25,000 customers in 114 different countries, VantagePoint is the leading AI trading software for Futures.



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