In trading on the stock exchange, many people look at open interest on the charts. In the trading terminal Quick, I also set up information about open positions. I use interest discoveries as additional information: new money comes in or money leaves the market. In my opinion, it is impossible to predict the price movement by open interest, and in general to predict the price movement in the future, it is not a rewarding and harmful business. We need to trade what we see now. There is information on the Internet on how to read it. OI will be attracted here as a determinant of "wind", i.e. directions for transactions. But in my opinion, it is useless and unnecessary to view it this way. You can view open positions in derivative financial instruments on the Moscow Stock Exchange by following the link:
it is the number of open futures contracts or options contracts. An open contract can be a buy or sell contract that has not yet been executed, closed, or has not expired.
Open Interest = Sum of short positions + Sum of long positions
increases when the buyer and seller enter into a new contract. In this case, the buyer opens a long position, and the seller opens a short position.
decreases if the parties liquidate existing contracts. In this case, the buyer sells his long position and the seller closes his short position.
Market strength as a function of price, volume and open interest.
The difference between open interest and volume is that the volume reflects the number of purchased-sold contracts (market turnover), and open interest shows the market size (the amount of goods on hand).
If the buyer opened a new long position (buying a futures), and the seller, in turn, opened a new short position (selling a futures), then the open interest will be equal to one, while the volume will be two.
To understand the mechanisms of the market, in my opinion, it is necessary to study open interest. It is necessary to observe open interest on the tick chart of the RTS index futures and overlay a line chart of open interest on top of it and watch how it behaves in a given situation.
How to set up open interest in Quick:
1. Add a new chart (indicator) to the chart
2. Click a new source in the "Add graph" table and select a new window - click yes. New window - if you want the open interest to be separate and below the price and volume graph. Or select window 1, open interest (line chart type, anchor to the left axis) will be superimposed in the form of a line chart on the price chart.
- Open interests, understanding and use in trade
- How is Open Interest calculated?
- "Open interest" as an indicator of liquidity.
- OI - as an indicator of the direction of price movement
- Interpretation of open interest
- Conclusion
The futures market, unlike the stock market, has another important characteristic: open interest. This is the so-called number of "open contracts". In order for you to be able to buy a futures contract, there must be a person who will sell it to you. At the time of the transaction, an "open contract" arises between these two people. Thus, the higher the "open interest", the greater the number of people involved in the game.
The amount of open positions, open interest (from the English open interest) is a technical indicator, the value of which is equal to the number of active futures contracts, such as futures and options, which have not yet been settled.
Open Interest is the number of open futures contracts or option contacts. An open contract can be a buy or sell contract that has not yet been executed, closed, or has not expired. That is, you need to understand that a futures contract is a contact between two persons (although they may not know each other), if one sells, then the other buys.
Now let's try to understand how this can help in making deals. To do this, imagine a hypothetical situation with one "open contract". In the event of a strong rise in price, a certain amount will pass from the hands of the “seller” to the hands of the “buyer”.
At some point, the “seller” may not have enough money to ensure the “buyer's” profit and he will have to close the deal, that is, buy this contract back from the buyer at a higher price (analogue of a margin call). At the moment of closing the deal, the former seller becomes the buyer, since in order not to become bankrupt he needs to close the losing deal as quickly as possible. Now suppose that we have not one such sellers, but 100,000 people, respectively, these 100,000 people, in order to prevent losses, are ready to close their unprofitable deals at any prices.
Thus, in the case of high "open interest" and a strong upward movement, at some point in the market there is excitement due to the fact that a large number of people suffering losses have to buy out their unprofitable positions, and the more of these people, the stronger there will be excitement at this moment, accompanied by a rise in prices.
There is one more important point, we must not forget that at the moment of strong movements one of the parties (“sellers” or “buyers”) receive significant profits, which can also be used as leverage in order to accelerate the price even more.
How is Open Interest calculated?
Open Interest is calculated by adding all contracts associated with opening trades and subtracting all contracts associated with closing trades. For example, if three traders (trader A, trader B, and trader C) trade ES futures, then their trades could affect open interest as follows:
Trader A opens a long position by buying one contract
Open interest rises to 1
Trader B opens a long position by buying four contracts
Open interest rises to 5
Trader A exits the position by selling one contract
Open interest drops to 4
Trader B opens a short position by selling four contracts
Open interest rises to 8
Calculating open interest becomes more complicated if we take into account that each trader buys / sells from another market participant, which, accordingly, sells / buys. Sometimes both parties open trades, increasing open interest. At other times, one of the parties will close its trade, and the other will open; this will not affect open interest. It may also be that both parties will close their trades and open interest will decline.
Thus, open interest is not the same as volume. Volume rises regardless of whether a position is opened or closed. In the case of open interest, it increases when trades are opened and decreases when positions are exited.
You may be interested in the article "".
Open Interest as an Indicator of Liquidity
Also, the value of open interest provides us with important information regarding the liquidity of these options. If the value of open interest is high, it means that there are many buyers and sellers in the market, which means that the chances of executing your order at the best price increase.
It should be noted that the price of the underlying asset can significantly affect the value of open interest. In-the-money options - where the underlying asset price is located or is very close to the strike - usually have the highest trading activity. If the price of the underlying asset has been near any option strike for a long time, for example, when the share price is $ 15 near the 15th strike, then it is quite possible to expect that the value of open interest will be higher on this strike than on other strikes.
But it also happens that the price can trade at a price of $ 12- $ 13, and then jump to $ 15, and, despite the fact that strike 15 has become the central one, the trading volume will not have time to increase due to the short time of finding the price. And accordingly, the liquidity of this strike may differ from the liquidity of the strike 12.5.
Also, liquidity can be determined by the ratio of the daily trading volume to the value of open interest. If the open interest value is 1000, and the trading volume is 5 contracts, then you are unlikely to be able to execute your order at a good price. Therefore, it is advisable to choose those option contracts, the open interest and trading volume of which have high values.
OI - as an indicator of the direction of price movement
As noted above, in-the-money options usually have the highest open interest value. Why is it so difficult to say, perhaps in-the-money options have the best value-to-value ratio. On the other hand, neither we nor the market know where the latter will go before the options expire, or if it will go at all.
Therefore, if you see that the value of open interest in options on the money is not the highest, then you must ask the question: why? The answer can be simple and consist in the fact, as mentioned above, that the price has recently come to this level and the central options did not have time to trade. If the price is at a certain level for a long time, but the value of open interest is small, then the answer is different. See the table below:
Interpreting open interest
Open interest in Forex is the total number of open and non-liquidated short and long positions on a contract by the end of the day for all traders. Data on open interest for traders trading on the Forex market, by analogy with data on trading volumes, should be searched for on the futures exchange for the corresponding instrument. Below is an example of a chart with an indicator of open interest.
Official data from the exchange for open interest comes with a delay of one day and with the same delay, respectively, is displayed on the charts. Changes in open interest indicators allow a trader to judge the degree of activity of all market participants, and in conjunction with an analysis of the trading volume - to analyze the strength or weakness of the trend existing in the market.
Open interest is often used as a confirmation (or non-confirmation) signal of the current price movement. But it, by itself, does not give any indication of the direction of price movement. Open interest only indicates how many contracts are currently in open positions, but does not indicate the presence of long or short positions.
The growing open interest indicates that the current price trend is valid, because the number of contracts “in play” is growing, which indicates an increase in activity and the interest of market participants in the current movement. The decline in open interest indicates that the current price trend may be weakening. Traders close their positions faster than other traders open theirs. For example, rising open interest along with a rise in price indicates that the upward movement may continue, while declining open interest along with a rise in price suggests that the uptrend may soon reverse.
Open interest can also be used to guess if the market will be trending or in a range. The growing open interest shows that the share of new positions is increasing. This suggests that active trading is taking place in this market, and the likelihood of a trend is high. The declining open interest shows that the share of new positions is decreasing. This suggests that this market may enter a period of low trading activity, and the likelihood of a range movement is high.
A low open interest rate in the options or futures market means that there is no active market for this type of contract. The volume will give the same information. With this in mind, even if the open interest is high, it does not necessarily mean that a given futures or options contract will trade at high volume on a particular day. Since open interest reflects open positions, such positions can continue to remain open, and the volume - low, until finally traders want to close their positions or take new ones. With this, we will usually see an increase in volume.
Conclusion
Open interest is an important indicator that allows you to accurately assess the market situation.
Some people mistakenly think that open interest is like volume. This is not true. Unlike volume, which shows how many contracts changed hands during the day, open interest only takes into account open positions.
If open interest grows, then it confirms the current trend, as traders open more and more positions. In the event that open interest begins to decline during the trend, there is a high probability of a reversal or range movement, as traders rush to close their positions.
In other words, when planning to buy from certain price levels, you should pay attention to the "open interest", when it falls - the potential for movement is low and the levels are likely to withstand, if it grows, it is worth stopping and thinking, since high "open interest" can give a movement a certain impulse to break through the level.
The material was prepared by Dilyara specially for the site
Volume and open interest are arguably the most overlooked tools in the arsenal of many traders. In the meantime, understanding them can provide insight into the psychological component of the market. And here's how.
On the charts, it is important for us to see not so much the price of the instrument as the volume and open interest. They provide a unique opportunity to understand the mentality of buyers and sellers in the futures market and better plan the upcoming trades, which will have a positive effect on the condition..
Buyers or sellers are more motivated
The value of volumes is easier to understand than the value of open interest, since they are a direct reflection of the need to make transactions experienced by market participants. Often, when a trader asks why the market went up, he gets a frivolous answer that there were more buyers than sellers. At first glance, this makes sense. But this is an imprecise expression, since there must be a seller for each buyer. The correct answer should be: buyers were moremotivated than sellers.
Volume has a direct correlation with the need to complete trades. High volume appears, as a rule, at the upper and lower levels of the price, when market participants panic out of positions or open new ones. After such overly anxious traders have made their purchases or sales, there is no one left with heightened motivation to do something. As a result, an extremum is formed on the chart.
The weekly silver chart (Figure 1) shows a giant spike in volume in late April 2011 (A), accompanying the formation of a top following a huge $ 24 rally. Low volume tends to indicate opposite emotions, that is, lack of interest. It implies that the price movement does not make traders feel the need to take trades. This usually happens when the market simply rests after a move to continue moving in the same direction soon.
Rice. 1. Bursts of volume
At the end of April 2011, there was a giant spike in volume (A), marking a top after a huge $ 24 rally
On the daily gas chart (Figure 2), it can be seen that after the downtrend resumed, the price bounced at point A. However, this happened at very low volume, which suggests that the downtrend may continue (note also the slight decline in the open interest - the blue line on the volume chart, which confirms this idea).
Rice. 2. Price bounce
After the downtrend resumed, the price bounced at point A. But this happened at a very low volume, which made it possible to assume the downward trend continued. Pay attention to the drop in open interest (blue line on the volume chart), which suggests the same
Timing of futures contracts?
When considering volumes and open interest, it is necessary to take into account the cyclicality associated with the timing of futures contracts. As the execution date approaches, the volumes tend to grow. One of the obvious reasons for this is that traders must exit their positions or replace them with positions at a later date in order not to get involved with the delivery. Another factor leading to the same development of events is the expiration of options. As time erosion diminishes the option price and interest expense, there is a marked increase in arbitrage opportunities between options, related futures, and the cash market. This is one of the reasons why there is a surge in volume and open interest when approaching the expiration date.
Open interest
When analyzing the market, open interest can be even more useful than volume. But interpreting it can be tricky. Theoretically, the price movement against the background of growing open interest suggests that new speculators are entering the market, that is, the trend can be expected to continue.
The daily chart for gold in Fig. 3 is a perfect example of how this phenomenon manifested itself in October (D). Note also the spikes in volume that accompanied short-term Highs and Lows at points A, B, and C.
Rice. 3. Growth of open interest
The price movement on the growth of open interest indicates that new speculators are entering the market, which allows us to expect the trend to continue. This can be seen at point D in October.
Volume spikes at points A, B and C occurred on short-term Highs and Lows
If the price moves on a fall in open interest, it means that speculators cover their positions. When they finish doing this, the price movement will drain. As a result, the market should reverse after completing the liquidation of positions. On the wheat weekly chart (Figure 4), you can see how open interest plummeted (A) as the market broke through to the new Low. This was to serve as a warning of an impending reversal.
Rice. 4. Falling open interest
This weekly wheat chart shows how open interest plummeted at point A as the market broke through to a new Low.
This should have been a warning of an impending reversal.
Open interest is influenced by expiration dates in the same way as volume, and even more so. On the S&P chart in Fig. 5 clearly shows how significantly this phenomenon manifests itself.
Rice. 5. Impact of expiration dates
The chart shows how bursts of open interest and volume appear at each expiration of contracts for futures and options on futures.
Each burst in open interest and volume represents the expiration date of the futures or options futures contracts.
Trader Engagement (TRA) Data Accounting
Another body of information that can help futures traders interpret the values of open interest is the weekly report oninvolvement of traders (COT), which comes out every Tuesday. This report breaks open interest into three categories: non-profit, commercial, and non-accountable. The commercial category includes legal entities that produce or consume an underlying commodity and use it to hedge their transactions. Non-profit includes large traders such asand large speculators. The non-reporting segment includes small traders whose positions are not subject to the Commodity Futures Trading Commission (CFTC) statutory reporting requirements.
The COT report provides an interesting snapshot of the current positions of commercial market participants and large funds. The CFTC also graphs this data on its website over several years. The information contained in COT can give the trader a better understanding of the reasons behind market movements.
Full picture
The volume and open interest, supplemented by the Trader Engagement Report data, help to better understand the psychological side of the market. This combination can give the trader an interesting edge when interpreting price action. Therefore, it is advisable to include these three elements in your trading toolkit.
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Jim Wyckoff
Futures volumes and open interest are factors that, for several reasons, should be closely monitored and monitored when trading futures.
First, let's define these two terms.
Open Interest is the total number of outstanding futures contracts (or options on them) with a premium at a specific time that have not expired. It is an indicator of the degree of liquidity of a particular futures market, which affects the ability to buy or sell at a certain price or near it.
The notion of open interest can seem tricky, especially to beginners. In a nutshell, this is how open interest is calculated: if the next buyer (long) and seller (short) open their positions by concluding a deal, the open interest increases by one. However, if a trader who has already opened a long position sells to a new market participant who is waiting for an opportunity to open a long position, then the open interest remains at the same level. If a trader, who has already opened a long position, sells to a new market participant who is waiting for the opportunity to close his short position, the open interest decreases by one.
Volume is the number of transactions in a futures contract (or an option on it) executed during a specified time period. Usually they talk about the volume of a particular trading session.
When volume and open interest are at a low level, then it is worth trading very carefully in such a market. In other words, this is an illiquid market. Therefore, it will be difficult to achieve timely execution and even at a good price. As for highly liquid markets, they are the least susceptible to manipulation by traders.
Most futures trading veterans agree that volume and open interest are secondary factors in helping to confirm technical indicators' signals. In other words, traders do not make their trading decisions based solely on trading volume and open interest data, but use them in combination with technical indicators to confirm or disprove their signals.
For example, if there is a strong “breakout” in the futures market that turns into a bullish momentum, then it will be a good signal to buy only if it is accompanied by a large trading volume. However, if a strong breakout impulse is accompanied by an insignificant trading volume, then this is suspicious. If the formation of a new price high or low is accompanied by weak volume, then this most likely means that the movement will soon exhaust itself or has already exhausted itself. If movements against the existing trend are accompanied by increased volume, then this may indicate the imminent end of the trend. This phenomenon is called divergence.
The basic rule is that as the trend develops, the volume should rise. In an uptrend, volume should be greater during bullish impulses and less during downward corrective moves. Conversely, in a downtrend, volume should be greater during bearish impulses and less during corrective upward moves.
Changes in the values of open interest can also help to confirm the trading signals of technical indicators. Open interest can give the trader an insight into new financial flows or contractions in the market. This can be helpful in monitoring trending markets.
Another basic rule of thumb is that if volume and open interest are increasing, then the trend is likely to continue to develop in the same direction. And if these indicators are declining, then, most likely, the trend has come to an end.
However, there is one difference between open interest and trading volume: open interest can be subject to seasonal trends (it can be higher or lower at certain times of the year). Average seasonality is very important when analyzing the open interest rate. If the price rises and the total open interest grows with it and exceeds the seasonality average (averaged over 5 years), then this means that new money from aggressive buyers is entering the market, which confirms the strength of the bullish trend.
However, if prices rise, and open interest falls below the seasonal average, then this growth is caused by holders of unprofitable long positions, who liquidate them, and, accordingly, money leaves the market. This is usually a bearish sign, indicating that the rally will soon be replaced by a decline.
A similar situation occurs in a downtrend. If, as the downtrend develops, open interest grows and exceeds the average seasonality, then this means that aggressive sellers have entered the market, and this is a bearish sign. But if open interest declines and falls below average in a bearish trend, it means that it will soon end as bulls liquidate their losing long positions.
Here are two more rules for open interest:
Very high open interest at price peaks can trigger a sharp crash.
Open interest that builds up during a consolidation (sideways movement before a breakout) can amplify a price breakout.
Many futures traders like to examine the Commodity Futures Trading Commission (CFTC) COT (Commitments of Traders) data for changes in open interest in order to understand what the big speculators and commercial traders are doing.
More information on COT data can be found on the official CTFC website.
about the author
Jim Wyckoff has been trading the stock, futures and options markets for over 20 years. Born and lives in Iowa.
He received his BA in 1984 from the University of Iowa with a major in journalism and an additional major in economics.
Jim was also a journalist for Futures World News and for many years reported on the stock exchanges of Chicago and New York, where he covered the current situation for each futures.
Shortly after Jim started his career as a journalist in finance, he began studying technical analysis. Analyzing price patterns and various technical indicators, he came to the understanding that this approach to analysis and trading in the markets divides market participants into “professional insiders” and simply individual traders.
His knowledge of the markets and painstaking work in the further study of technical analysis have earned him several prestigious positions, including the position of chief technical analyst at very famous companies.
According to him, his task is not only to help traders "generate" profit, but also to teach them to understand the essence of markets and trade on them, since there is no limit to skill in the trading world, therefore there is always what to strive for and what to learn.
Is the total number of open contracts (not closed and not delivered) that exist on a given day with delivery on a particular day. Open interest is often associated with the derivatives market (futures and options), where the number of open contracts changes from day to day, in contrast to the stock market, where the number of shares is a constant number since their issue.
For every seller of a futures contract, there must be a buyer. One seller and one buyer together create one contract. Therefore, the total open interest in the market for certain futures is equal to the total number of purchases or the total number of sales, and not their total number.
Open interest is sometimes confused with trading volume, but the two terms refer to completely different concepts. For example, on the day that one trader who has 10 futures sells them to a new trader entering the market, this operation does not create a change in the open interest value for that futures; since no new contracts have been added to the previously open ones. However, the sale of these 10 contracts increases the number of the trading volume by the value of these 10 contracts. The value of open interest changes when a new buyer and seller enter the market, creating a new contract
Open interest is a measure of the flow of money into the futures market. An increase in open interest indicates new or additional money entering the market, while a decrease indicates that money is flowing out of the market.
How is open interest used in trading?
In the popular literature on stock trading, it is believed that an increase in open interest should be interpreted as a buy signal, while a decrease in it is usually interpreted as a bearish sign.
Open interest is also used as an indicator of momentum in the strength of a trend. Since increasing open interest reflects additional money entering the market, it should indicate an increased attention to the market, and therefore this situation is usually interpreted as a sign that the current market trend is gaining momentum and is likely to continue. On the other hand, the decrease in open interest reflects indifference on the part of investors and diminishing momentum, indicating that the current trend may soon be exhausted.
What's the catch? 
Interpreting a growing open interest as a strengthening trend against the background of opening positions at the expense of new money pouring into the market can be a misconception. To understand its nature, consider WHO opens these new contracts? Seasoned Pros or Emotional Newbies?
Let's conduct a practical analysis of open interest indicators in the Gazprom share futures market. Let's go to the website of the Moscow Exchange, to the statistics page on trading in the current contract GZU6.
Note the proportion of bidders: the number of individuals is an order of magnitude higher. The ratio in the world of predators and prey.
An interesting feature of this source of information is that open interest data is provided with a breakdown by bidders - private traders and firms. Followers of the Wyckoff method and the VSA strategy naturally assume that individuals are mainly represented by the public (newcomers, the crowd), and legal entities - by banks, funds and other organizations where capital is managed by professional traders. And from this point of view, an interesting picture opens up ...
Let's collect data on changes in open interest by day in an Excel table:
Price and open interest statistics, where:
- L1 - long positions (longs) of individuals;
- S1 - short positions (shorts) of individuals;
- L2 - long positions (longs) of legal entities;
- S2 - short positions (shorts) of legal entities;
- HLC / 3 - Typical price = (high + low + close) / 3.
Let's build a graph and analyze it:
- There is an obvious correlation between the actions of traders from among legal entities (double solid lines) and the general public from among individuals (single solid lines). This is a visualization of the interaction between beginners and professionals, and the thesis “for each buyer there should be a seller”. When newbies accumulate longs, the pros get an open position on the short side of the market.
- The tactics of the actions of individuals is noteworthy - when the price went down (blue dotted line) until August 3, they increased longs, trading against the trend. And the faster the decline was, the more actively the beginners made purchases (probably, averaging the previously opened longs).
An example of using these open positions.
On the right edge of the last chart, it is noticeable that, in fact, on the 18th day of trades, the public for the most part increased the number of open longs, and astute and few professionals - shorts, which suggests that they are preparing for an approaching decline. And with this idea in mind, the reader of the chart is watching the session open on the 19th, which is marked by an obvious upthrust, or the inability of the price to rise after a significant effort (marked with an arrow). Most likely, the public opened longs even more on this upward movement - only to see the price treacherously retreat downward, leveling all progress. And then, after the signal “no demand”, it breaks the support on the way down.
Instead of output. How to use data on open positions?
Open interest analysis can be a useful auxiliary tool if you believe that the market is a confrontation between professionals (smart money, insiders, experienced traders, insiders, strong hands) and the public (crowds, newbies, weak hands). By analyzing the relationship between price and volume, and making up his own opinion about the current situation in the market, a trader can refer to data from open interest to confirm his judgment (or question). Having identified the growing dynamics of open interest, he must decide who is active behind this growth? Professionals, or the general public, which is highly likely to lose money on the stock exchange?
P.S. While this article was being written, the trading session on Friday the 19th ended. The price of GZU6 futures fell from 13925 to 13804, and the public (individuals) ... increased unprofitable longs.