Bitcoin is an investment in human freedom and the basic rights of the individual… time and time again it has been shown that progress towards such rights will never die but gain greater speed…
Hi, thanks for producing this useful article. I have a question. How is the qty of 'long' and 'short' positions determined in the graph 'CME Bitcoin Derivatives'? In a future, for each long position, there is a counterparty with the equivalent short position. By result, the qty of contracts with long positions equals the qty of short positions. So here I get stuck, but probably I am missing something here? Hopefully you can tell me how that distinction is determined. Thanks a lot!
You are completely right, for every long there is a corresponding short somewhere. So if you were to take the sum of all long and short positions they would add up to zero.
But different groups of traders are holding different amounts of long and short positions.
As an example you could have hedge funds (as a group) being short 10 contracts and retail traders (as a group) being long 10 contracts. That would show on the charts as hedge funds short, retail traders long, but overall it adds up to 0.
This is the idea of the data displayed here. We try to see how different groups of traders are positioned relative to each other. From there we guess things about the strategies being used and the sentiment in the market.
I hope this clarifies a little bit what the data means.
Hi Nick, thanks! I understand the distinction between groups. But who is who in the first graph 'Smart Contracts'? It shows short and long positions, but does not tell who is holding which of either (nor does add up to zero). Just explaining here what I think I see, so you can correct me better. Cheers!
I re-read your answers, and I think you mean that the subcategory for the first graph displaying long and short positions is: "Smart Money". In my understanding smart contracts are irreversible contracts that settle without human intervention. (but than, a common future contract fits that definition.) Can you provide some detail about what personas are actually covered by this subcategory "Smart Contracts"? Much obliged, thank you!
To clarify, the smart money category is unrelated to smart contracts.
In the finance industry it is common to make the difference between individual/retail investors and the investors who are professionals. Those professionals are often referred to as 'the smart money' for their supposed insight into the market.
To go a bit further, the weekly data from the Commitment of Traders report is divided into categories defined by the CFTC. Among those categories 'Asset Managers' and 'Leveraged Funds' added together is what constitutes the 'Smart Money' category on the charts. They are the professional investors whose main purpose is to generate returns by deploying some trading strategies.
The 'Retail Traders' category on the chart corresponds to the 'Non Reportable' category of the CFTC. This is what you have left after you remove all kind of other professional participants (dealers, hedgers, commercial and smart money).
Bitcoin is an investment in human freedom and the basic rights of the individual… time and time again it has been shown that progress towards such rights will never die but gain greater speed…
🙏
Thank you for the visuals. That puts things on perspective for many. Is there a similar chart available somewhere for Ether?
I haven't done the chart for Ethereum yet. But I'll do a similar analysis comparing different assets (including ETH) in a future post.
When in doubt, zoom out!
Hi, thanks for producing this useful article. I have a question. How is the qty of 'long' and 'short' positions determined in the graph 'CME Bitcoin Derivatives'? In a future, for each long position, there is a counterparty with the equivalent short position. By result, the qty of contracts with long positions equals the qty of short positions. So here I get stuck, but probably I am missing something here? Hopefully you can tell me how that distinction is determined. Thanks a lot!
You are completely right, for every long there is a corresponding short somewhere. So if you were to take the sum of all long and short positions they would add up to zero.
But different groups of traders are holding different amounts of long and short positions.
As an example you could have hedge funds (as a group) being short 10 contracts and retail traders (as a group) being long 10 contracts. That would show on the charts as hedge funds short, retail traders long, but overall it adds up to 0.
This is the idea of the data displayed here. We try to see how different groups of traders are positioned relative to each other. From there we guess things about the strategies being used and the sentiment in the market.
I hope this clarifies a little bit what the data means.
Cheers,
Nick
Hi Nick, thanks! I understand the distinction between groups. But who is who in the first graph 'Smart Contracts'? It shows short and long positions, but does not tell who is holding which of either (nor does add up to zero). Just explaining here what I think I see, so you can correct me better. Cheers!
Got it, you were talking about the breakdown between long and short positions within categories.
Each category is made of individual traders. Those traders have net positions and this is what is used as a basis for all the other calculations.
If category X has three traders say Alice, Bob and Charlie they each report their net positions:
- Alice net long 10 contracts
- Bob net long 10 contracts
- Charlie net short 10 contracts
Then category X will look like:
- Net long 20 contracts
- Net short 10 contracts
And in aggregate category X is long 10 contracts.
So net long open interest within a category is the sum of the positions of all traders that are net long (same for net short).
Maybe that clarifies the data. Let me know if I’ve missed something.
So the subcategory makes it possible to have a disbalance in short and long positions. Which is that subcategory which this graph displays data of?
I re-read your answers, and I think you mean that the subcategory for the first graph displaying long and short positions is: "Smart Money". In my understanding smart contracts are irreversible contracts that settle without human intervention. (but than, a common future contract fits that definition.) Can you provide some detail about what personas are actually covered by this subcategory "Smart Contracts"? Much obliged, thank you!
To clarify, the smart money category is unrelated to smart contracts.
In the finance industry it is common to make the difference between individual/retail investors and the investors who are professionals. Those professionals are often referred to as 'the smart money' for their supposed insight into the market.
To go a bit further, the weekly data from the Commitment of Traders report is divided into categories defined by the CFTC. Among those categories 'Asset Managers' and 'Leveraged Funds' added together is what constitutes the 'Smart Money' category on the charts. They are the professional investors whose main purpose is to generate returns by deploying some trading strategies.
The 'Retail Traders' category on the chart corresponds to the 'Non Reportable' category of the CFTC. This is what you have left after you remove all kind of other professional participants (dealers, hedgers, commercial and smart money).