To: Henry Volquardsen who wrote (994 ) 11/2/1999 9:44:00 AM From: Paul Berliner Respond to
As far as knowing how many people are on the wrong side of the trade, thats easy and its the same for exchange traded and non exchange traded. Half . so long as we don't know the actual open interest in a market we cannot hedge ourselves properly nor prepare ourselves should too many participants be caught on the wrong side of a trade, because we do not know the true number of participants is that when a trade goes bad and there is much higher open interest than public data states, the reverberations can be greater in severity than one would expect. A good example is the Yen in the summer of '98 - the open interest in the Yen was huge, thus there were huge losses and the reverberations were great. On the flipside, if there's a violent move in something with low open interest, such as Palladium futures, sure there are wounds to lick but not to the severity of a violent move in the yen. half " assertion, that's what we are all taught, and it is true, but I believe to only varying degrees. The only place where I think it rings 100% true is the futures market. It certainly is not often true in the equity options market, where the firms try to keep a neutral book by buying or selling common against whatever options are written. Often both parties in the options market walk away from a trade happy. In the equity markets, it's often possible for everyone to make money except the last party holding a stock before it goes down.
