Open Interest

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Open Interest

Open Interest is a Volume study of the total number of contracts open (in existence) in the market place for that particular instrument.

Open interest is very similar to Volume but it relates only to futures and derivatives.

Use of Open Interest

For every contract there must be a buyer (long trader) and seller (short trader). Therefore the more open contracts in the market place the more liquidity. By monitoring open interest one can gauge whether buyers and sellers are moving in or out of the market.

If open interest is increasing, the buyers and sellers (market participants) are moving into the market. Conversely, if open interest is decreasing then the market participants are leaving the market, or closing out their positions. Changes in open interest are most promising when matched by similar changes in the share price.

Minor movements in open interest are insignificant. In Australia open interest cannot be followed too closely because of the practice by some brokers to only square up or match the contracts out once or twice per week, therefore creating a false sudden large change in the open interest numbers.

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