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Why are futures contracts so large?
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Why are futures contracts so large?

  #31 (permalink)
Market Wizard
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xplorer View Post
Energy Daily Exchange Volume & Open Interest

Yesterday's figures for Crude Oil Future

Total volume traded: 746,306

Open interest: 2,029,807

Change from Open interest: -10,998

Change from Open interest is 1.5% of yesterday's traded volume. Everything else was open and closed in the same day.

It shouldn't even be a matter of opinion that 98.5% of trades open and closed yesterday, which suggests the overwhelming majority of trades is speculatory in nature.

Technically that's not true. You could theoretically have had all 746,306 be closing of Open Interest, as long as the other side of 735308 of the trades, were opening of open interest, leaving just 10998 trades that were opened and closed in same day.

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  #32 (permalink)
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SMCJB View Post
Technically that's not true. You could theoretically have had all 746,306 be closing of Open Interest, as long as the other side of 735308 of the trades, were opening of open interest, leaving just 10998 trades that were opened and closed in same day.

Thanks, I understand what you are saying.


If I look at the same relationship of traded volume Vs. open interest over a week's worth of data, this is what I get

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The change in open interest always appears to be small. Are you saying that the likelihood is that every day there may be hedgers operating in the way you described above?

Also, my thinking theory is, one to be qualified as hedging, they probably won't open and close trades over short periods of time. How long that is, I don't know.
But if that theory holds, then another thing should be true: that different hedging participants over that week's worth of data come (as the other side) to close hedged position that were opened by others, and so forth.

Does it make sense, and am I reading it right?

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  #33 (permalink)
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Just to clarify I was pointing out that your math wasn't necessarily correct, not that your assumption was wrong. I actually believe your assumption is probably not far from reality.

Just FYi as an illustration. So far today I have traded 142 lots of crude oil, involving 11 different months. (Actually 71 lots of 14 different spreads). In 4 of those months I have reduced my open interest by 62 lots, while in the other 7 months I have increased my open interest by 72 lots. So net effect is 142 lots traded, open interest +10.

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  #34 (permalink)
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Regarding "hedgers", your defined as a hedger, based upon the business/assets you hold and not how you trade. So company XYZ may be classified as a hedger because they own say a refinary and some tank farms. They might also have a large trading arm. Everything the trading arm does, is classified as hedging, even if its pure speculation, since the company itself has a "hedger" classification.

Quoting myself from another thread...


SMCJB View Post
The problem with the Commitment of Trader reports are their accuracy. Back in 2008 the CFTC reclassified Vitol from being a commercial hedger to non-commerical speculator. The result? An 10% shift in the report. Yes reclassifying one company resulted in a 10% change in the COT reports! Makes you wonder about how so many other companies are classified.

Reuters:- Big CFTC data revision raises oil traders' eyebrows


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  #35 (permalink)
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Washington Post story on the Vitol reclassification

A Few Speculators Dominate Vast Market for Oil Trading

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  #36 (permalink)
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SMCJB View Post
Regarding "hedgers", your defined as a hedger, based upon the business/assets you hold and not how you trade. So company XYZ may be classified as a hedger because they own say a refinary and some tank farms. They might also have a large trading arm. Everything the trading arm does, is classified as hedging, even if its pure speculation, since the company itself has a "hedger" classification.

Quoting myself from another thread...

I see, so there are "hedgers" who also (and perhaps mainly) trade for speculation, not hedging, but they're classed that way so that's what they're called. Thanks for the clarification.

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  #37 (permalink)
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That definitely used to be the case, and I believe still is, but they may have got a little stricter

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  #38 (permalink)
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Why are futures contracts so large?

This is one of those "I know a guy" stories, so take it with a grain of salt. I conversed with someone doing a finance internship over the summer and they talked about oil traders for energy firms actually being quite active. I don't know exactly what that means but we shouldn't assume that they are merely hedging, or merely hedging in the way we imagine.

I wish I had probed deeper but I was only interested in equities at the time, particularly Microsoft and their devolving cloud computing business.

Sent from my iPad using futures.io mobile app


Last edited by Redhouse; December 21st, 2016 at 12:37 PM.
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