Futures Methodology Overview – Services And Fees

Open Interest Analyst provides fund managers with a tactical approach for analyzing U.S. commodity, financial, and currency futures. My methodology incorporates fundamentals, seasonals, spreads and sentiment. Additionally, I contextualize the analysis of present markets with market history. However, the daily analysis of price, volume, and open interest  (P-V-OI)  is at the core of my research. P-V-OI is invaluable for decision support because of the special insight it provides into each day’s trading. To learn more, please see Open Interest Defined at the end of this overview.

Clients choose the futures market(s) they want covered. And I provide research on the most liquid currency futures traded on U.S. exchanges: petroleum, metals, grains, softs, livestock, and financials. U.S. futures markets post P-V-OI data for the previous day’s session and I use this for my reports. I evaluate each day’s price activity relative to its volume and open interest increases or decreases to determine if P-V-OI is supporting or contradicting price movements. I watch for patterns of behavior that may warn of impending moves. Additionally,  current (P-V-OI) data is used to evaluate patterns from past days and weeks.

Evaluating futures markets solely on price action is misleading. To understand a particular market’s strategic framework, I use charts, moving averages, and performance measurements in different time frames. I monitor inter-market and intra-market spread behavior because they frequently provide obscure but valuable insights.

Fundamentals are integrated into reports when they reveal an important insight and I track seasonal patterns to assess how past market behavior may impact the current market. These are especially useful in agriculture because the seasons for planting, harvesting and marketing have changed little over the years. 

The Commitment Of Traders Report published by the CFTC each Friday is useful to gauge investor sentiment. I use it to compare the strength or weakness of one commodity to another and from one commodity group to another.    

Volume factors strongly into my analysis of price and open interest. It confirms a move’s strength, or lack thereof and is the fuel that drives markets day-to-day. Volume measures the amount of money flowing in and out of markets whereas open interest increases and decreases represent commitments made by market participants.

I approach all markets with the philosophy that it is better to stand aside than participate in trades that may have suboptimal outcomes. A trade that is suboptimal is one in which a loss or a gain is nearly or equally likely. Because of the substantial leverage inherent in futures trading, suboptimal trades are common. I only recommend trades when the risk-reward ratio and market setup support the likelihood of a successful outcome.

Due to leverage, trade timing and selection are essential, and my top priority is to assess potential trades from a defensive stance. Managers can outperform if they wait for superior opportunities, however, this means making fewer trades. The key to success is to keep losses to a minimum. This topic is rarely addressed, but controlling losses is mandatory to outperform.

Services And Fees

The fee for the services listed herein is $800.00 per month per futures contract with a three month commitment. Renewals are for a minimum of three months. The monthly fee also includes daily telephone/text/email communications with me during and after market hours.

Daily Report

Each trading day, Clients shall receive an analysis for each futures market subscription. The report includes an interpretation of P-V-OI data from the previous day. I provide my opinions on the market environment along with recommendations to buy, sell, or stand aside. The daily report also highlights other futures contracts that may be making a move. Each Monday, I publish data from the CFTC Commitment of Traders for the relevant subscription along with my interpretation. Seasonal trends, as previously mentioned, can provide a unique perspective and are included in reports when relevant. Opportunities may arise in securities based upon the movement of commodities and these are presented at no extra charge.

Open Interest Defined

Simply stated, open interest is the outstanding number of contracts that have not been liquidated. A futures contract comes into existence when 1 new buyer and 1 new seller are matched by the exchange to form 1 contract of open interest. For example, if total open interest is 100,000 contracts, this means there are 100,000 short positions and 100,000 long positions that have been matched to create total open interest of 100,000 contracts. Open interest declines when 1 existing long and 1 existing short both close out their positions during the day, thereby decreasing open interest by 1 contract. Open interest does not change when an existing long and an existing short are replaced by a new short and a new long within the same day.

Below, is a table that explains the relationship between price, volume and open interest and its impact on market behavior.

For example, if price moves higher and open interest increases, longs are in control. On the other hand, if price moves lower and open interest increases, shorts are in control. When open interest declines, whether it is on a price decline or advance, both existing longs and shorts are liquidating their positions.

Increases of Open interest occur when both longs and shorts disagree about the direction of price on a particular day. Open interest declines when both longs and shorts agree to liquidate on a given day.