Estimated leverage ratio relative to price trend
Estimated leverage ratio is defined as the ratio of open interest divided by the reserve of an exchange.
Estimated leverage ratio | Price trend | Implications |
---|---|---|
High and rising | Rising | Over-leveraged long positions, potential bearish reversal |
Remains high | Falling from peak | Traders buying the dip on leverage, exposing themselves to a long squeeze |
High and rising | Falling | Over-leveraged short positions, potential bullish reversal |
Remains high | Falling from bottom | Traders shorting the spike on leverage, exposing themselves to a short squeeze |
When estimated leverage ratio is falling, it indicates a reversal is taking place.
When estimated leverage ratio is low, it indicates that leverage levels are low (significant de-leveraging has taken place).
Sources of estimated leverage ratio data are:
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