DEFINITION of Open Position Ratio
An open position ratio is the percentage of open positions held for each of the major currency pairs on a given trading platform, relative to the total number of positions held for all the major pairs on that platform.
BREAKING DOWN 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 – and are updated periodically during the day. They do not show the percentage of long or short positions relative to total positions for a major currency pair, for which there are long-short ratios.
Example of an Open Position Ratio
For example, a currency pair of euros and U.S. dollars (EUR/USD) may have an open position ratio of 25.8. This means that EUR/USD represents 25.8% of all open positions. The percentages always add up to 100%, even though minor currency pairs are not included in the calculations. The major pairs are the four forex pairs which are considered to be the most heavily traded in the forex market: EUR/USD, USD/JPY, GBP/USD, USD/CHF.
However, as open position ratios are determined by positions of the traders on that retail trading platform, it will only be a tiny sample of what is occurring in the broader forex market, where large investment banks dominate the market. Spot trades only represent a small percentage of the foreign exchange market, 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 just reflect herd behavior.