The Natural gas markets have been making the news this year. Many see natural gas as a way to get off our dependence on foreign oil. Since it is plentiful here, many people want to see us develop natural gas as an alternative fuel to use.
With all this talk of natural gas, you may want to invest in this market and there are many ways to do so. Over the last year or so one of the most popular ways is to invest in a natural gas etf.
Natural Gas ETFs are exchange-traded funds of which there are many different types to trade. One of the popular funds is the United States Natural Gas Fund. This fund was created and is managed by the United States Commodity Funds LLC. The United States Natural Gas Fund, ticker symbol UNG is a fund made up primarily of natural gas futures contracts trade on the New York Mercantile Exchange. This fund typically buys the front or spot month contracts of natural gas futures. Two weeks before the contract expires, the fund rolls the contracts into the next contract month.
This is where the new United States 12-Month Natural Gas Fund, ticker symbol UNL differs. As it name states, its trades the first 12 months of the natural gas futures on NYMEX. Its sister fund, the United States Natural Gas Fund only trades the spot month contract. Both of these funds trade futures on an un-leverage basis, this way they won’t get margin calls.
Does it make a difference which of these funds to trade? Well yes. Since the UNL trades the first 12 months, this mitigates the effect of either contango or backwardation on the fund. With the United States Natural Gas Fund, each month the either fund is rolled into the next contract. This can have a huge effect on the funds prices. Since the United States 12-Month Natural Gas Fund only rolls 1/12 of the fund each month, the contango/backwardation is minimized as compared to the United States Natural Gas Fund. When the United States 12-Month Natural Gas Fund rolls out of the spot month contract, it then purchases the 13th month contract, so that part of the fund doesn’t need to be rolled for another year. Doing this also helps lower the expenses of the fund by not trading as often and saving commission expense.
Both the United States 12-Month Natural Gas Fund (UNL) and the United States Natural Gas Fund (UNG) are traded on the New York Stock Exchange
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