The total number of active futures contracts that have not been settled or closed in a market. It represents the total level of participation and outstanding obligations for a particular contract.
Why It Matters
- 1Open interest helps traders gauge market activity, liquidity, and potential price trends.
- 2Rising open interest can indicate new positions are being added, while declining open interest may signal positions are being closed.
Example
A trader notices that open interest in a crude oil futures contract has increased alongside rising prices, suggesting strong market participation and trend confirmation.
Common Mistakes
- ✖Confusing open interest with trading volume
- ✖Ignoring how changes in open interest relate to market sentiment
- ✖Assuming high open interest always indicates a price move
- ✖Overlooking the role of open interest in assessing liquidity