What You Need to Know About Trading the Energy Market

Many people understand the benefits of trading forex. There is a world full of opportunities waiting for people in other markets. Among the most exciting markets is the energy market. It includes the petroleum markets, natural gas, and exotic ones like heating oil.

The first thing to know before trading energies is that the broker must offer CFD (contracts for difference) access to these markets. Typically, the CFD markets move in lockstep with the futures markets, but there might be a slight difference.

Probably, traders are used to seeing currencies as a reflection of economies, and they should also see energies the same way.

The U.S. Dollar

Though it is not as apparent in the natural gas markets, crude oil markets are susceptible to the U.S. dollar value. And this makes sense as the crude oil - similar to other commodities - is prices in U.S. dollars.

The Economic Numbers

People must remember that energy is sensitive to the global economic picture. For instance, if global growth is strong, that often a good sign for energy markets because it takes energy to work manufacturing and transportation.

With that, it has a knock-on impact on crude oil and natural gas because people use both to power large facilities and shipping.

In the case of many commerce going on, there would be a lot of energy consumption. As a result, the demand will be higher.

As an Indicator

A peculiar view of energy trading is that some people will utilize electricity, natural gas, and crude oil consumption in countries like China as an early indicator of global economic strength.

China is the world's factory, and it stands to reason that it will use a significant amount of energy to ship goods worldwide. Then, it must put energy in boats and trucks it uses for trade.

Employment in the U.S.

The Nonfarm Payroll (NFP) announcement is the employment figures in the United Staes. And it can have a significant impact on energy markets too. And this is because when more people are working, more energy is needed for manufacturing and transportation.

Also, there is a seasonality to the crude oil markets as there is what they call the 'summer driving season' in the United States. And it's common for families to be in their car and drive several states away, increasing gasoline consumption.

Energy Markets are not Equal

Generally, people need to stay with the largest energy markets - West Texas Intermediate Crude, Light Sweet Crude, Brent, and Natural Gas. Although they can trade things like Heating Oil, that kind of market is not as liquid as the broader energy markets and can become quite erratic.

Traders will spend most of their time researching demands for those energies than the other larger markets. Mostly, hedgers use these energy markets, not speculators.

Currencies as Proxy

If people don't want to be bothered with energies, they can use certain currencies as a bit of a proxy. But they must know that there are more noisy factors involved in some of these currencies, like inflation.