Herrick Payoff Index

What is the Herrick Payoff Index?

The Herrick Payoff Index (HPI) is a futures-specific indicator, attributed to John Herrick, that combines price change, volume, and open interest into a single smoothed measure of money flowing into or out of a contract. It is one of the few classical indicators to use open interest at all, which is what distinguishes it from the equity-oriented volume tools: in futures, rising open interest on a move means new positions are being opened in that direction, while falling open interest means positions are being closed, and the two situations have very different implications even when price and volume look identical.

The index exists because volume alone is ambiguous in derivatives. Heavy volume can be fresh commitment or mass liquidation, and only the change in open interest separates them. HPI scales each bar's signed price change by volume and then adjusts the result up or down according to whether open interest expanded or contracted, before applying exponential-style smoothing. The output oscillates around zero: positive values are read as money flowing into the long side, negative values as money flowing out or into shorts.

Practitioners care about HPI mainly on daily futures charts, where open interest data is published reliably. Divergences between HPI and price, and zero-line crossings, are the standard reads. Its constraints are equally clear: it is meaningless on spot instruments without open interest, sensitive to contract rolls, and dependent on the value-per-point and smoothing parameters chosen.

How it's calculated

Published implementations vary in detail; the standard form scales volume-weighted mean-price change by the relative change in open interest, then smooths cumulatively.

This is a described standard form rather than a single canonical formula; platforms differ in the open interest adjustment, scaling constants, and smoothing. Compare readings only within one implementation.

How traders use it

• Divergence at extremes: price making a new high while HPI makes a lower high suggests the advance is running on position liquidation rather than fresh money, a caution flag for trend continuation.
• Zero-line crossings: crosses above zero are read as net money inflow and used as trend confirmation; in choppy conditions these crossings repeat and need a price-structure filter.
• Distinguishing short-covering rallies: a rally with positive price change but contracting open interest scores weaker on HPI than one with expanding open interest, helping separate covering bounces from genuine accumulation, a distinction also central to COT analysis.
• Limitations: open interest is reported with a lag on many exchanges, contract rollovers distort the series unless data is stitched carefully, and the indicator is inapplicable to cash equities and spot forex.

Herrick Payoff Index vs other money flow tools