TRADERS´ Blogs

Open Interest is the number of open contracts of a given future/option contract. An open contract can be a long/short contract that has not been exercised, closed out. It is really more of a data field than an indicator. A fact that is sometimes overlooked is that a futures contract always involves a buyer & a seller. This means that one unit of open interest always represents two people, a buyer & a seller. Open interest increases when a buyer & seller create a new contract. This happens when the buyer initiates a long position and the seller initiates a short position, whereas it decreases when the buyer & seller liquidate existing contracts. Rising price & rising open interest confirm the direction of the current trend. Falling price & falling open interest signal that an end to the current trend may be imminent.