What is the open position ratio?
The open position ratio is calculated as the percentage of open positions held for each of the major currency pairs on a Exchange platform or trade, relative to the total number of positions held for all major pairs on that platform.
It is a local indicator of open interest on forex market trading platforms and will vary between and among different forex platforms and exchanges.
Key points to remember
- The open position ratio indicates the proportion of open currency positions held on a given forex trading platform.
- This ratio gives a general idea of which currency pairs have the most open interest on a platform and should not be confused with a particular long-short ratio for a currency pair.
- The open position ratio is of limited use as it varies from platform to platform and largely only indicates spot retail activity.
Understanding the Open Position Ratio
Open position ratios are used by exchange traders to give them an idea of which currencies investors are focusing on, showing how one major currency pair compares to others, updated several times a day. It is used in conjunction with trading volume activity for this purpose.
The open position ratio is a relative measure of open interest between different currencies and does not show the percentage of long or short positions to total positions for a major currency pair, for which there are long-short reports.
As open position ratios tend to be determined locally by traders’ positions on a particular retail trading platform, this will only represent a small sample of what is happening in the much wider forex market, where large investment banks dominate the market. Cash transactions only represent a small percentage of overseas transactions, and retail platforms only represent a small percentage. If open position ratios are of any use, it’s to show which retail businesses have become crowded, and it could simply reflect herd behavior.
Example of open position ratio
As an example, the Euro to US Dollar (EUR/USD) currency pair may have an open position ratio of 25.8 on the hypothetical FutureForex platform. This simply means that EUR/USD represents 25.8% of all open positions on FutureForex at that time.
The percentages of all available open position ratios will always add up to close to 100%. This is because minor currency pairs are often not included in the calculations, which can result in a total less than one hundred percent. The major currency pairs will include the four currency pairs considered to be the most traded in the forex market: EUR/USD; USD/JPY; GBP/USD; and USD/CHF.
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