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What is Open Interest

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  • What is Open Interest





    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. Here we take a look at what information open interest holds for a trader and how traders can use that information to their advantage.
    KEY TAKEAWAYS
    • There is no fixed supply of futures contracts, as there is with shares of stock or bonds outstanding—a futures contract appears when a buyer and seller agree to it.
    • As a result, traders in futures markets often look to the open interest of various contracts to gauge market sentiment, interest, and liquidity.
    • Technical traders can also use open interest to look for trends and momentum opportunities and to confirm market timing on trades.





    What Open Interest Tells Us


    A contract has both a buyer and a seller, so the two market players combine to make one contract. The open interest position 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. Similarly, an increase in open interest along with a decrease in price confirms a downward trend. An increase or decrease in prices while open interest remains flat or declining may indicate a possible trend reversal.
    Last edited by skisurfboardclimb; 10-13-2020, 09:49 AM.

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