The average daily turnover in the foreign exchange market is over $5 trillion a day. Many traders and analysts put considerable weight on market positioning.  However, it proves very elusive.

What many institutions do is analyze their own flows.  I remember speaking to a central bank official about it several years ago. He said to me, if your flows are truly representative of “the market” it should  show buyers and sellers of a currency offsetting each other, which will give me little information.  And if your flows are not representative, what use is it?  

I worked at another bank that tried a different tack.  The analysts conceived of the market like a swarm of bees.  What they were interested in was the bees that led the swarm.  Rather than looking at where the buying and selling was coming from geographically, they organized their data flow by the execution style.  They found that those accounts that make for immediacy often lead the market direction.    

Such sophisticated studies are possible only at the very large banks, and typically the reports are not widely available.  Retail and some institutional participants often use the positioning in the futures market to get a sense of market positioning.  But here too, an open interest in the futures market of one contract consists of a short and a long position.  Hence the truism: for every long there is a short.  

What interests us are not all positions.  The Commodity Futures Trading Commission requires (most) participants to declare whether they are a commercial, with underlying business interests, or a non-commercial, with no underlying business interest.  The non-commercial is understood to be a speculator.  Since their positions are seen as discretionary and directional (as opposed to hedging, for example), analysts monitor the speculative positioning.  The speculative positioning is understood to be a proxy for a segment of the market that are momentum trend followers.