Using extreme positioning
In the COT report, under each type of currency futures, you can see that the total
contract volume in each category is split up between “long”, “short” and “spreads”
of which the first two are relevant to our analysis. What is of concern to us is
whether the non-commercials are net long or short in that currency futures
In order to determine the volume of contracts that these large speculators are
holding net long or short positions of for that particular currency futures, you just
need to calculate the difference between the longs and shorts, that is, subtract the
number of short contracts from the number of long contracts. A positive figure
shows the number of net long contracts, while a negative figure shows the number
of net short contracts
As you can see in Figure 5.4, the open interest for GBP futures on Tuesday December
19, 2006, was 149,800 contracts which was a decrease of 31,780 contracts from the
previous week. The non-commercials are long 98,434 contracts and short 12,836
(contracts. Therefore, they are overall net long 85,598 contracts (98434 - 12836
