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 given trading platform or exchange, relative to the total number of positions held for all the major pairs on that platform. The open position ratio is calculated as the percentage of open positions held for each of the major currency pairs on a given trading platform or exchange, relative to the total number of positions held for all the major pairs on that platform. 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 relative to total positions for a major currency pair, for which there are individual long-short ratios. The open position ratio indicates the proportion of open currency positions held on a given forex trading platform. As open position ratios tend to be locally determined by the positions of the traders on a particular retail trading platform, it will only represent a tiny sample of what is occurring in the much broader forex market, where large investment banks dominate the market.
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 given trading platform or exchange, relative to the total number of positions held for all the major pairs on that platform.
It is a local indicator of open interest in forex market trading venues and will vary between and among the different forex platforms and exchanges.
Understanding the Open Position Ratio
Open position ratios are used by foreign exchange traders to give them a sense of which currencies investors are focusing on, by showing how one major currency pair compares to the others, updated several times each 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 relative to total positions for a major currency pair, for which there are individual long-short ratios.
As open position ratios tend to be locally determined by the positions of the traders on a particular retail trading platform, it will only represent a tiny sample of what is occurring in the much broader forex market, where large investment banks dominate the market. Spot trades only represent a small percentage of foreign transactions, and retail trading platforms are only a small percentage of that. If open position ratios have any use, it is to show which retail trades have become crowded, and this might simply reflect herd behavior.
Example of an Open Position Ratio
As an example, the currency pair of euros vs. U.S. dollars (EUR/USD) 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 at FutureForex at that time.
The percentages of all open position ratios available will always add up close to 100%. This is because minor currency pairs are not often included in the calculations which can cause the total to be less than one hundred percent. The major currency pairs will include the four forex pairs which are considered to be the most heavily traded in the FX market: EUR/USD; USD/JPY; GBP/USD; and USD/CHF.
Related terms:
Cable
Cable is a term used among forex traders that refers to the exchange rate between the U.S. dollar (USD) and the British pound sterling (GBP). read more
Currency Basket
A currency basket is comprised of a mix of several currencies with different weightings. read more
Currency Pair: EUR/USD (Euro/U.S. Dollar)
The Currency Pair EUR/USD is the abbreviation for the euro and U.S. dollar. read more
Foreign Exchange (Forex)
The foreign exchange (Forex) is the conversion of one currency into another currency. read more
Forex Spot Rate
The forex spot rate is the most commonly quoted forex rate in both the wholesale and retail market. read more
GBP/USD (British Pound/U.S. Dollar)
GBP/USD is the abbreviation for the British pound and U.S. dollar (GBP/USD) currency pair or cross. The currency pair tells the reader how many U.S. dollars (the quote currency) are needed to purchase one British pound (the base currency) read more
Herd Instinct
Herd instinct in finance is the phenomenon where investors follow what they perceive other investors are doing rather than their own analysis. read more
Long-Short Ratio
The long-short ratio indicates how much of a security has been sold short vs. the total amount available to sell short. read more
Open Position
An open position is a trade that has been entered, but which has yet to be closed with a trade going in the opposite direction. read more
Open Interest
Open interest is the total number of outstanding derivative contracts, such as options or futures, that have not been settled. read more