What Is the Open Position Ratio?
The open position ratio is calculated as the percentage of open positions held for each of the main overseas cash pairs on a given purchasing and promoting platform or business, relative to the total choice of positions held for all the number one pairs on that platform.
This can be a local indicator of open passion in foreign currency market purchasing and promoting venues and will vary between and one of the crucial different foreign currency platforms and exchanges.
Key Takeaways
- The open position ratio indicates the percentage of open overseas cash positions held on a given foreign currency echange buying and selling platform.
- This ratio supplies an basic impact of which overseas cash pairs have one of the most open passion on a platform, and should not be puzzled with any specific long-short ratio for a overseas cash pair.
- The open position ratio is of limited use as it varies from platform to platform, and is perfect indicative in massive a part of retail spot process.
Understanding the Open Position Ratio
Open position ratios are used by foreign currency echange buyers to provide them some way of which currencies patrons are specializing in, by the use of showing how one number one overseas cash pair compares to the others, up-to-the-minute quite a lot of circumstances each day. It is used along side purchasing and promoting amount process for this function.
The open position ratio is a relative measure of open passion between different currencies and does not show the percentage of long or fast positions relative to basic positions for a large overseas cash pair, for which there are specific individual long-short ratios.
As open position ratios tend to be in the community decided by the use of the positions of the buyers on a selected retail purchasing and promoting platform, it’s going to perfect represent a tiny trend of what is going on inside the so much broader foreign currency market, where massive investment banks dominate {the marketplace}. Spot trades perfect represent a small proportion of out of the country transactions, and retail purchasing and promoting platforms are only a small proportion of that. If open position ratios have any use, it is to show which retail trades have turn into crowded, and this may increasingly simply reflect herd conduct.
Example of an Open Position Ratio
For example, the overseas cash pair of euros vs. U.S. greenbacks (EUR/USD) may have an open position ratio of 25.8 on the hypothetical FutureForex platform. This simply signifies that EUR/USD represents 25.8% of all open positions at FutureForex in this day and age.
The possibilities of all open position ratios available will always add up with regards to 100%. It’s because minor overseas cash pairs don’t seem to be continuously included inside the calculations which is able to explanation why the total to be lower than 100%. The most important overseas cash pairs will include the 4 foreign currency pairs which can be regarded as to be one of the most carefully traded inside the FX market: EUR/USD; USD/JPY; GBP/USD; and USD/CHF.
