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.
- The open position ratio indicates the proportion of open currency positions held on a given forex trading platform.
- This ratio gives an overall impression of which currency pairs have the most open interest on a platform, and should not be confused with any particular long-short ratio for a currency pair.
- The open position ratio is of limited use since it varies from platform to platform, and is only indicative largely of retail spot activity.
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.