Open interest
1. The idea
A futures contract is a forward contract with standard terms, traded on an exchange. Open interest is the number of futures contracts still open: each has one trader long and one trader short. It is not the volume, the number of contracts traded in a day. A trade changes the open interest in one of three ways:
- both traders open new positions: one more contract is open, +1;
- both close positions they already had: one contract fewer, −1;
- one opens and the other closes: a position passes from one trader to another, no change.
An example. On Monday, Ann buys a contract from Ben; both open positions, so the open interest is 1. On Tuesday, Ann sells her contract to Cal, who opens a position while Ann closes hers: the open interest stays 1. On Wednesday, Ben buys a contract from Cal, and both close: the open interest is 0. Three contracts were traded, but only one was ever open.
From a day’s report, count the long positions, one for each open contract. A buyer who opens adds one, and a seller who closes takes one away, because only a trader who is long closes by selling:
\[ \text{change} = \text{buyers who open} - \text{sellers who close}. \]
2. Try it
If an answer is wrong, we will see what went wrong and how to fix it.
3. Open interest on a chart
First, the simplest trade.
Now move the number of trades in which both sides open. The open interest changes with it, while the volume stays the same.
4. One worked example, then your turn
In the worked example, we start from yesterday’s open interest and today’s report of who opened positions.
Now one with hints, one step at a time.
And one on your own.
5. Practice
Each question has new numbers. You master the skill when you get three right in a row, with at least one right answer from the kinds of trades and one from a day’s report. You can always open the solution, but then that question does not count.
6. Coming back to it
When you have mastered a skill, it comes back on the start page for a short review after 1 day. After each right answer the next review comes later: after 3, 7, 14 and then 30 days. After a wrong one, the reviews start again at 1 day.
This skill: