






How to calculate Open Interest?





Open Interest and Volume 

Open interest and volume are the two important concepts in the futures market. Traders look at both to predict trends. 

Let’s discuss them one by one. Though both OI and volume are quite similar, which often confuses new traders, they are not the same. 

OI represents the number of open contracts in the futures market, in possession of individual buyers and sellers. 

Now for the futures market, for every contract sold, there should be a buyer. So, the number of total contracts transacted in the day remains balanced. Volume refers to the total number of contracts executed during the day. So, if one contract is sold and bought, the volume goes up by one (pls note: the volume adds up by 1 and not 2 because only one contract passed between the buyer and seller). 

At the beginning of the day, the volume is set to zero. Hence, you get a clear picture of the number of contracts exchanged hands during the trading hours. Open interest is not as discreet as volume. The value of open interest may remain unchanged or change depending on the number of traders entering or exiting the trade.

Let’s discuss further with the help of an example. Consider there are three traders in the market, A, B, and C. 

On day one, seller B sells 8 futures contracts, and Buyer A buys all eight. So, after day one, both volume and open interest stood at eight. 

Next day, A sells five contracts and C buys five contracts. At the end of the second day, volume changes to five (number of contracts changed hands); but open interest remains unchanged at eight because no new contract was created in the market. 

It is important to note that volume changes daily, but the open interest may remain unchanged for days. Open interest will remain the same unless new contracts are initiated, or the old ones are settled or executed.

Benefits of monitoring open interest





Conclusion :

Hope you have now got a fair idea of: what is open interest? Now here is a word of caution. If you see that there is a lot of open position along with significant price change, refrain from entering the market. It is an indication that the market is in the grip of an unexplained over-enthusiasm. When it happens, even a small trigger is enough to cause panic among traders. If it happens then, everything will come crashing down.


Where can i find tickets?

Open interest is critical to determine liquidity in the options market. If there is no open interest for the contracts, it means, there is no secondary market. On the other hand, a sufficient number of open interests indicates an active market with a large number of buyers and sellers.

What does open interest indicate?

Open interest signifies quite a few things in the futures market.
  • It indicates the available number of unsettled futures contracts with individual buyers and sellers
  • Essentially, the number of open interest contracts also signifies liquidity
  • It helps predict the market trend
  • Together open interest and volume help traders make better trading decisions
  • What is the use of open interest?

    Traders in the derivative market use the open interest to determine demand. It is a more accurate measurement of options trading activities and the flow of money, whether increasing or decreasing. And in doing so, open interest predicts market trend and reversal.

    How do you trade with open interest?

    There are quite a few ways to predict the market with OI and trade in the direction of the market.
  • If the OI number is rising along with an upward movement in price action, the market is considered bullish
  • When price movement remains upward but accompanied by a decline in OI, the market is then bearish
  • When both OI and price are dipping, it indicates mounting pressure among traders as the bear takes the charge
  • A drop in price action but increase in OI also indicates a bear trend
  • What is the highest open interest?

    High OI means that there are contracts available for trading. As OI only goes up when new or additional money is coming in the market, increasing OI indicates the presence of new buyers and sellers. Decreasing OI indicates an outflow of money.