What does the Herrick Payoff Index measure?

The Herrick Payoff Index is specifically designed to measure the flow of money into and out of a specific futures contract, taking into account both volume and open interest. This index is valuable for traders as it helps to identify whether there is buying or selling pressure in the market. An increase in the index indicates that more money is flowing into the market for that particular contract, which can signal bullish sentiment, while a decrease might suggest bearish sentiment.

By analyzing this measure, traders can gain insights into the underlying market dynamics, improving their understanding of potential price movements based on the money flows associated with trading volume and changes in open interest. This makes it an effective tool for assessing commitment from traders and potential future price trends associated with the identified money flow.