Natural gas forward prices are standardized, exchange traded contracts. Through these contracts the purchaser agrees to procure a specific amount of natural gas from the seller at a predetermined cost.

The buyer then takes delivery of the resource on a predetermined future date. Both the consumers and producers of the energy commodity attempt to manage fluctuating cost risk by buying and selling in this manner.

A short hedge is used by the producers to secure a selling cost for the amount of product they produce. Producers may opt for a short hedge to protect against falling costs by assuming a position in the natural gas forward prices market.

By taking this position, producers can firmly fix a selling price for the ongoing production of the commodity that will only be available for sale on an upcoming date. Producers sell enough of these contracts in the futures market to cover the quantity of the product to be produced in order to activate the short hedge.

Some businesses may choose to utilize a long hedge rather than a short hedge in order to obtain a set purchase amount for the volume of the commodity that they anticipate needing to meet their demand.

A long hedge is used by businesses that routinely need a large amount of this resource and allows them to protect against escalating costs in the marketplace. This option is implemented by purchasing enough of the contracts to cover the amount of the product that is required by the buyer.

Speculators also trade natural gas forward prices. These traders take on the cost risk that those using short or long hedges work to avoid.

By accepting this risk of the volatile energy market, speculators look for opportunities to profit from trades during times when natural gas prices are favorable to their position in the market. These traders then purchase the contracts when they anticipate the costs will increase, and in turn will sell when there is an indication that costs will go down.

Before initiating a position in a contract an adequate available balance must exist in the future trader’s margin financial credit to satisfy the minimum margin requirement as determined by the seller.

The amount equal to the original margin condition will be subtracted from the trader’s account and then relocated to the exchange’s clearinghouse once the natural gas forward prices position has been opened. These funds are retained by the exchange institution that manages financial transactions during the duration of the futures position.

Those trading in natural gas forward prices also must establish a maintenance margin. This margin is equal to the lowest amount that traders are obligated to keep in the margin portfolio to maintain his futures position.

This minimum amount is characteristically somewhat lower than the initial minimum amount. Should the remainder of the forward prices trader’s margin credit drop beneath the minimum required level, the trader will be required to bring his financial holding up to the level that will comply with the original margin condition.

MXenergy is a leader in natural gas forward prices as well as a retail power company which offers commercial and retail electricity.

Please visit us at http://www.mxenergy.com/ for all your energy needs.

Author Bio: MXenergy is a leader in natural gas forward prices as well as a retail power company which offers commercial and retail electricity.

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Keywords: natural gas forward prices, electricity and gas, natural gas, energy companies, saving energy