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Open Position Ratios of FX Brokerages

Forex Specific Sentiment Indicators

1.  Oanda's Open Positions Ratios (FX Labs).

Description:

Oanda provides two attractive graphs that breakdown the in-house open positions for the major currency pairs, updated every 20 minutes. The left hand graph shows the Long-Short Ratios—the ratio of long vs. short positions for each of the major currency pairs. The left (green) percentage shows long positions; the right (red) percentage shows short positions. The right hand graph shows the Open Position Ratios—the percentage of open positions held for each of the major currency pairs, relative to the total number of positions held for all the major currency pairs. Note that the percentages always adds up to 100%, even though minor currency pairs are not included in the calculations. 

Contarian Signal:

Oanda does not provide any specific contrarian recommendations in relation to two ratios above, but anyone familiar with Sentiment theory knows that one can use the long-short ratios graph to trade counter the crowds. Whenever the ratio shows that longs greater than 50%, then crowd sentiment is bullish on that pair, and one can take that as sign to be bearish. Whenever the ratio shows that shorts are greater than 50%, then crowd sentiment is bearish on that pair, and one can take that as sign to be bullish. The ratio is more powerful the greater the degree above 50%, such that if longs are showing up as 70% then that means that the crowd is extremely bullish and more likely to be wrong. Moreover the ratio is powerful when it flies against the dominant trend; for instance, if the EUR/JPY is 70% long (extremely bullish), and the dominant trend is down, then it means that the crowds are buying aggressively into Euro/Yen losses, giving the contrarian signal that the pair could hit further lows. 

Source: FXLab's Open Position Ratios

http://fxtrade.oanda.com/analysis/open-position-ratios

It looks like this: 


Complimentary Source: FXLab's Forex Order Book

As a compliment to the Open Positions Ratio, one can see how the Open position ratios work out over a 24-hour period by going to another FXLab's tool:

http://fxtrade.oanda.com/analysis/forex-order-book

This tool compares OANDA’s Open Orders and Open Positions for any major currency pair using a slider in the rate chart on right to see how the statistics have changed over the past 24 hours. 

Complimentary Source: FXLab's Historical Positions Ratio

As a even better compliment to the Open Positions Ratio, one can see how the open positions ratio has evolved over 30 day blocks of time using this FXLab tool: 

http://fxtrade.oanda.com/analysis/historical-positions


This tool is the creme-de-creme of what you can get from broker specific sentiment indicator. I have complained about Dukascopy and FXCM's sentiment indicators not having a proper historical tool to gauge the historical relationship between ratio extremes and price action in order to construct more valid contrarian signals. Oanda provides the best answer with the tool above. 

The beauty is that the top graph and the bottom graph work in sync. Wherever you move the red vertical line on any time on the chart you can simultaneously see the ratio of longs in the top graph and the percent change from start of period in the bottom graph. For illustration purposes, I have placed the red vertical line on Jan 9, 2012, at 9:00 PST, just after the EURUSD had retreated from its bullish correction back into the dominant downward trend. At this point one might have wondered if the downward trend would continue from Dec 11 or hit a strong support once again at the -3% level. A quick look up at the top graph would show that the forex crowd is strongly bullish at 60% in the face of the downward rush. This would be the contrarian hint that the downward trend can indeed continue, as the crowd is often wrong. 

Pros:

  • Oanda provides three levels of sentiment (last 20 minutes, 24 hour, 30+ day) and one can easily explore the richness of each one
  • Oanda's ability to cross-reference sentiment levels against percent rate change using a vertical bar is an invaluable research tool. 

Cons of Source:

  • Oanda's ratios are in-house, derived from the positions of their own clients, and this makes the ratios limited in scope, as they do not reflect the numbers of the retail consumer industry as a whole.

2. Dukascopy's SWFX Sentiment Index.

Description:

This index (published every 30 minutes) provides an in-house percentile ratio of longs versus shorts of its consumers (i.e., retail traders) and providers (rate providers), and since it is the consumers that are considered the "uninformed" participants, one is going to trade counter to them. 

Contrarian Strategy:

Dukas considers their indicator to be a good contrarian indicator, and gives the example of it acting as an additional confirmation filter to approve or disaprove trading signals originating from a MA crossover. If the MA strategy gives a buy signal and the sentiment indicator for EURUSD and EUR are oversold, one can avoid that position; conversely, if the indicator is oversold and the MA strategy gives a sell signal you have more probability of success.

Source:

To access the SWFX Sentiment Index, click here:
http://www.dukascopy.com/swiss/english/marketwatch/sentiment/

It looks like this:


Cons of Source:

  • Dukas does not give any hints as to what ratio values constitute overbought or oversold levels so one has to make a guess. 
  • Dukas ratios are in-house, derived from the positions of their own clients, and this makes the ratios limited in scope, as they do not reflect the numbers of the retail consumer industry as a whole.
  • Dukas does not provide much historical context. The percentile ratios and changes can only be seen at the moment of viewing them. It attempts to publish the changes of ratios as they occur from last update, 6 hours ago, 1 day or 5 days ago, but how useful are these percentile changes if there is no archiving of the ratios and their changes in a spreadsheet or chart? Without a proper historical database and charting application, there is little possibility of effectively gauging from past ratios the extreme levels that price has turned around upon, and thus what levels constitute the extremes that can be used for an effective contrarian strategy. 

3.  FXCM's SSI: The Speculative Sentiment Index.

Description:

This index (reported every Thursday at DailyFX.com or twice per trading day inside DailyFX Plus) provides an in-house ratio of longs versus shorts of its own clients, and since they are considered the "uninformed" participants one is going to trade counter to them. FXCM strives to provide more useful information than Dukascopy. It delivers the present ratio along with the percentage long, the percentage change in open interest; it provides a chart of the currency pair with the FX SSI OpenInterest() plotted underneath, and it gives a bullish or bearish signal backed up by a qualitative description of the signal's relationship to other technical analysis considerations. 

Contrarian Strategy:

FXCM considers their indicator to be a good contrarian indicator. Whenever the ratio is above 1, or 50%, it means that the sentiment is bullish and thus a bearish signal is given. Whenever the ratio is below 1, or below 50%, the sentiment is bearish and thus a bull signal is given. The strength of the bullish or bearish signal is dependent on the percentile degree above or below 50, along with the percentage change from last report. The signal is also powerful if the ratio stands against the dominant trend; for instance, if EUR/USD is 57% bullish, and the dominant trend is down, then it means that the forex trading crowds are buying aggressively into Euro/US Dollar losses, giving the contrarian signal that the pair could hit further lows. 

Source #1: Weekly SSI Report

To access the weekly SSI, click here:
http://www.dailyfx.com/technical_analysis/sentiment?technicalSentiment=EUR/USD

It looks like this:


Cons of Source:

  • Since this source is updated only on Thursday, it has limited value for day traders unless one is trading on the day of or day following the release.
  • FXCM ratios are in-house, derived from the positions of their own clients, and this makes the ratios limited in scope, as they do not reflect the numbers of the retail consumer industry as a whole.
  • FXCM does provide a currency pair chart that has the SSI indicator plotted underneath, but this chart is limited to only the past 6 months and there is no zoom feature that enables one to zoom into a specific period to get a better gauge of a specific week's historical ratio in relation to a the effectiveness of a contrarian signal. 
  • There is no handy archive of previous week's reports, and there is no track record of the success or failure of the SSI's signals.

Source #2: Daily SSI via DailyFX Plus

If one has opened and funded FXCM account, then one can be part of the DailyFX Plus and receive FXCM's SSI updated twice every day, with current information of FXCM's own trading book, what FXCM's own clients are trading. There are other benefits of the DailyFX Plus such as FXCM trading signals, Daily FX trading course, and a Technical Analyzer.

Cons of Source:

  • Though twice a day is far more frequent than the weekly SSI report, it is not updated as frequently as Dukascopy (every 30 minutes) or Oanada (every 20 minutes). 
  • One must have a funded account with FXCM to access this report, whereas Dukascopy and Oanda's open book ratios are free.

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