Why worry about the Hedge Ratio?

Exchange traded derivatives are about a 600 trillion USD market out of which approximately 46% is in stock index options and futures, substantially greater than exchange traded vanilla equity volumes.

Derivative trading directly affects the benchmark indexes so everyone with an interest in markets should be concerned about the Hedge Ratio.



How does it work?

Please see about for a more technical definition but pragmatically above the zone you get futures selling and below it futures buying.

We grade exponentially the amount of which to expect (Y = minimal, R = significant, DR = potentially pivotal and B = dangerous).

Of course in each benchmark we place an exact level where to expect this and in doing so leave ourselves nowhere to hide as the proof will be there, or not, for all to see when the market hits that particular level.



How can it help me?

There are so many different aspects of trading or just market involvement it is impossible to be specific but anyone interested in markets for whatever reason should want to know about the biggest influence on them.

In its simplest form knowing in advance where a big futures seller will be (Nb. when the market is above the zone) could be a benefit to a scalper, anyone interested in avoiding paying the high of the day, to tighten stops or just as a measure of the strength of the markets commitment to name but a few.

July 10th, 2017 by R1chard