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Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
Thanks Given: 4,388
Thanks Received: 10,207
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.
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
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.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
Thanks Given: 4,388
Thanks Received: 10,207
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.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
Thanks Given: 4,388
Thanks Received: 10,207
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.
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.
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.
