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# Estimated Leverage Ratio

Estimated Leverage Ratio (ELR) is defined as the ratio of open interest divided by the reserve of an exchange

## Definition

Estimated Leverage Ratio (ELR) is defined as the ratio of open interest divided by the reserve of an exchange.
$\text{Estimated Leverage Ratio} = \frac{\text{Open Interest}}{\text{Amount of Reserve}}$

## Interpretation

Estimated Leverage Ratio indicates how much leverage is used by users on average.
ELR for a derivative exchange tells us how much leverage is used by users on average. This information measures traders' sentiment whether they take a high risk or low risk.

### By value itself

It could be interpreted as the degree of leverage of the market
• High: Over Leveraged Market+ Possible Volatility
• Low: Low Leveraged Market

### By examining trend

It shows the sentiment or tendency of total investors' urge to use leverage.
• Increasing trend: Holding More Leverage
Increasing in values indicates more investors are taking high leverage risk in the derivatives trade.
Also, if ELR value is high compared to the last couple of days, it indicates traders are quite confident in their positions.
• Decreasing trend: Taking off Leverage
Decreasing in values indicates more investors are taking off leverage risk in the derivatives trade.
Also, if ELR value is low compared to the last couple of days, it indicates traders are changing their views or finishing their positions.