Open Interest In The Futures Market
Open interest, the total number of open contracts on a security, applies primarily to the futures market. Open interest is a concept all futures traders should understand, because it is often used to confirm trends and trend reversals for futures and options contracts. Although this number often gets lost as traders focus on bid price, ask price, volume and implied volatility, paying attention to open interest can help options traders make better trades. Here we take a look at what information open interest holds for a trader and how traders can use that information to their advantage. Open Interest Tells Us that A contract has both a buyer and a seller, so the two market players combine to make one contract. The open interest position that is reported each day represents the increase or decrease in the number of contracts for that day, and it is shown as a positive or negative number. An increase in open interest along with an increase in price is said to confirm an upward trend.