Herrick Payoff Index Explained for Australian Investors (2025 Guide)

The world of technical analysis is always evolving, and in 2025, savvy Australian investors are looking for every edge they can get. One lesser-known yet powerful indicator gaining traction on local trading desks is the Herrick Payoff Index (HPI). This tool, originally developed for commodities trading, is making waves in Australia’s volatile markets—especially as regulatory changes and economic shifts challenge traditional strategies. If you’re keen to sharpen your trading toolkit, understanding the HPI could be a game-changer.

What is the Herrick Payoff Index?

The Herrick Payoff Index is a technical indicator designed to measure the flow of money into and out of a futures contract. Developed by John Herrick, the HPI combines price, volume, and open interest to give traders a unique view of buying and selling pressure. Unlike basic momentum or volume indicators, the HPI aims to reveal the underlying strength (or weakness) behind price moves—making it especially useful in commodities and derivatives markets, but increasingly relevant for equities and ETFs as well.

• Formula highlights: The HPI uses changes in open interest and volume to estimate how much capital is moving into or out of a market.

• Interpretation: Rising HPI values typically indicate strong buying pressure; falling values suggest increased selling or liquidation.

• Application: Traders often use the HPI to confirm price trends or spot divergences that could signal reversals.

Why the Herrick Payoff Index Matters in 2025

Australian financial markets have seen significant shifts in 2025, from the continued impact of AI-driven trading to new ASIC regulations on leveraged products. In this context, the HPI stands out as a tool that can help filter out market noise and provide deeper insight into trader sentiment and capital flows. Some reasons why the HPI is drawing attention:

• Commodity volatility: With increased demand for Australian lithium, iron ore, and agricultural exports, commodity markets have become more unpredictable. The HPI helps spot when institutional money is moving in or out of these contracts.

• Crypto and ETF adoption: ASX-listed crypto ETFs and commodity-backed funds are seeing a surge in volume. The HPI’s blend of volume and open interest can reveal accumulation or distribution phases before price moves.

• Regulatory landscape: ASIC’s 2025 tightening of margin rules for retail derivatives trading means technical confirmation tools like HPI are more valuable than ever for risk management.

For example, traders watching the ASX Wheat Futures contract in early 2025 noticed a divergence: prices were drifting higher, but the HPI turned down sharply, foreshadowing a rapid correction as speculative interest faded.

How to Use the Herrick Payoff Index in Your Trading Strategy

Incorporating the HPI into your trading doesn’t require abandoning your current approach—it’s best used as a confirmation or filter. Here’s how Australian investors are leveraging the HPI in 2025:

• Trend confirmation: Use the HPI to confirm the strength of a breakout in ASX-listed commodity ETFs. A rising HPI alongside price increases suggests the move is backed by genuine capital inflows.

• Divergence spotting: If price is rising but the HPI is falling, it could indicate a lack of conviction or potential exhaustion. This is a red flag for overextended trades in leveraged markets.

• Risk management: Combine the HPI with stop-loss orders or trailing stops, especially in the wake of 2025’s updated ASIC risk disclosure requirements.

• Multi-market analysis: Apply the HPI to both futures and ASX-listed shares to identify whether capital is rotating between sectors (e.g., from mining to renewables).

Several Australian brokers now integrate the HPI into their advanced charting platforms, making it accessible for self-directed investors and SMSFs looking for a quantitative edge.

Herrick Payoff Index: Limitations and 2025 Best Practices

While the HPI is a powerful tool, it’s not infallible. False signals can occur during low-liquidity periods or due to sudden regulatory news. In 2025, best practices include:

• Cross-verification: Always use the HPI alongside other indicators (e.g., MACD, RSI) and fundamental news.

• Context awareness: Be mindful of contract rollovers, especially in agricultural and energy futures, as these can distort volume and open interest readings.

• Stay updated: Monitor ASIC bulletins for any changes in reporting requirements or product structure that might impact data integrity.

As more Australian traders embrace algorithmic strategies, the HPI’s unique blend of price, volume, and open interest data is becoming a staple in systematic models—especially for those navigating the complexities of 2025’s dynamic markets.