Open interest futures. Open interest on the exchange
In one of the previous articles on the reports of the Chicago Mercantile Exchange, I casually mentioned about traded open interest... Therefore, today's review will be a kind of continuation of the topic started earlier, since on its pages we will try to reveal the basic provisions of the analysis of OI.
Let's start with the definitions. Open interest (OI, OI) on the exchange is understood as the number of active futures contracts, in other words, it is the total volume of short and long positions opened on the asset, the maturity of which has not yet arrived.
A fixed-term contract is a special financial derivative that involves the delivery of goods or mutual settlement between the parties under pre-agreed conditions.
As a rule, this term refers to various contracts, but within the framework of today's topic, we will only be interested in futures and options, i.e. instruments traded on the exchange.
Where to look for traded open interest
This information is not "secret" and is available to every trader who has an account on the derivatives market, ie. in the general case, only the functions of the trading terminal will be sufficient to obtain the corresponding indicators.
The only thing I can advise is to use special resources on which you can plot OI for currency futures, in particular, I use the site http://www.barchart.com/.
Traded open interest analysis
To learn how to read OI and the price, you first have to understand the mechanism for calculating it, i.e. with "technical" reasons why the indicator goes up or down. Practice shows that one of four typical situations occurs on the market at any given time.
First, if the buyer of the asset (in our case, it is a currency futures) opens a new long position, and the seller builds up the short (i.e., does not just get rid of the previously purchased contract, but plays down), the traded open interest increases.
For a beginner forex trader, such an interpretation may not seem entirely clear, but there is nothing complicated here. The most important thing to remember is that in any market the buyer always interacts with the seller, i.e. if someone has increased a long position, it means that someone has sold the contract, i.e. acted as a counterparty.
Thus, when bulls and bears begin to open positions aggressively "against each other", the number of valid contracts increases, i.e. the market is becoming more capacious.
For a better understanding of the situation, consider a simple life example. Suppose in Region N factories sell rebar to local customers. Under normal conditions, the market is stable, i.e. old, familiar, counterparties interact on it.
Then a holding company begins to build a large stadium, as a result of which the demand for metal rises to a level that cannot be met by local producers. This situation attracts new suppliers of fittings from neighboring regions.
Thus, it can be argued that the traded open interest increased, as the number of contracts for the supply of products increased. The same thing happens on exchange market, only the role of the commodity is played by futures and options.
The second situation is if the seller fixes financial results for a previously opened short position, and the buyer closes the old long, the OI goes down.
In this case, the market capacity decreases, i.e. bidders lose interest in the asset. If we return to the example with fittings, then a similar situation will be observed in the real sector after the stadium is put into operation.
The third situation - the buyer increases the long, and the seller fixes the profit on the previously opened long position, i.e. he sells the available contract to the one who wants to buy it.
In this case, the traded open interest does not change, since the market volume remains the same, i.e. this is the same as the formal resale of rebar from one warehouse to another, after which the actual supply and demand remain unchanged.
And the last situation(fourth) is similar to the previous one, only in this case the trading participants "exchange" a short position, therefore the OI remains unchanged.
Thus, according to the dynamics open interest You can judge the strength of the trend, so further analysis comes down to comparing the trend and the OI indicator, in particular:
- If the price and the traded open interest rise - the bulls are gaining strength, the upward momentum is likely to continue;
- If the price falls, and the OI grows, a bearish trend is relevant, it is reasonable to sell the asset;
- In the event that interest falls, it is safe to say that the current trend is weakening;
- A stable value of OI most often indicates the continuation of the previous trend, although a similar dynamics can be observed during.
In addition, practice shows that before a trend reversal, an abnormal surge in open interest is often observed, so this signal can be used both to conclude counter-trend deals and to search for exit points from a previously opened position.
In conclusion, I would like to note that the analysis of the traded interest should be carried out on daily charts, since the intraday fluctuations of the OI do not carry any semantic load and are subject to a "speculative" factor. In addition, publicly available CME reports accumulate data only after the close of the trading session.
Today we will tell you what open interest is, its value in the cryptocurrency market and how to work with it.
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How do you find your advantage?
To get a profit, you need to have an advantage over other market participants.
Types of advantages for market makers:
- Inside (often market makers have "their own" information from trusted sources - although the watchful eye of the SEC is trying to fight them)
- Access to classified information before reports (earnings)
- Access to the book of pending orders and manipulations based on this information. It is not for nothing that there are artificial barriers to the date (key information from exchanges) showing some part of the true data (for example, paid access to news, real quotes without delays and intermediaries such as dealing, etc.). Even more obstacles are placed in the processing of all this information (for example, -Zaks is a cool service, but expensive).
One of the windows for peeping real money can be noted on open interest.
At any time in a liquid market, there are both buyers (holding long positions) and sellers (short). The difference between them (open positions) is called Open Interest.
It can be used to objectively assess the real sentiments of market participants, track changes and see the overall average position of all players. Market makers use OI to their advantage by analyzing position changes in real time.
Information about the number of open positions on the exchange is displayed in a special database called OPEN BOOK. Access to the PR is usually not available to retail traders.
Chicago commodity exchange daily after the end of the session, after clearing, a consolidated OI (Open Interest) is published for each instrument traded. But, unfortunately, this is OI on daily charts. There is no access within the day.
For cryptocurrencies, the situation is the same, but, fortunately, there is one exchange that gives real-time margin volumes of both long and short positions. The difference between them is approximately and will give OI and its changes.
Thanks to the TV service, it is possible to know Open Interest using Bitfinex data.
The Open Interest indicator developed by us allows you to see OI and assess changes in the current market situation. The indicator does not give hard buy / sell signals, but shows a REAL picture. We have noticed that divergences between OI and prices on the upper and lower fractals work well. Divergences give leading signals. Thanks to this, you can receive entry / exit signals by combining them with your trading system.
The indicator works with many popular cryptocurrencies for both USD and USD
An example of working with the indicator, text version
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- 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 losing trades at any price.
Thus, in the case of high "open interest" and a strong upward movement, at some point in the market there is a rush due to the fact that a large number of people suffering losses have to buy back 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, do 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
The calculation of 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 rather 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 it is 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 have to 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 total amount open and non-liquidated short and long positions on the 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 presence of 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 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, this 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 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 takes into account only 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 a purchase from certain price levels, you should pay attention to the "open interest", when it falls - the potential of the movement is low and the levels are likely to withstand, if it grows - it is worth stopping and thinking, since the high "open interest" can give the movement a certain impulse to break the level.
The material was prepared by Dilyara specially for the site
Market sentiment Is one of the most important driving factors of trade. Its assessment is extremely important in trading practice, but unfortunately, it is often overlooked by traders. Exists different ways measuring the sentiment of the majority of market participants, but we will look at how this process is carried out using the analysis of the indicator of open interest.
Forex market and open interest
The analysis of the indicator of open interest in the derivatives market (futures, options) is a standard analysis tool, but for most traders who trade in the foreign exchange spot market, this topic is unfamiliar. In the last article, we focused on the fact that when trading on foreign exchange market forex information regarding volume and open interest is absent, since all transactions are carried out on the over-the-counter market. As a result, there is no report on all market transactions.
Therefore, to obtain data on volume and open interest as important indicators of the strength of movements in the forex market, it is necessary to use data on open interest and volume in the currency futures market.
Interrelation of spot and futures currency markets
Unlike the spot currency market, which does not have a centralized trading platform and unified system accounting, transactions in currency futures occur on exchanges, for example - the Chicago Mercantile Exchange (CME). These markets are quite strongly interconnected, and data on the volume and open interest in the futures market allows the trader to evaluate market sentiment in the Forex market. Currency futures prices are determined primarily by the spot market price, which differs by the amount of forward swaps. The foreign exchange spot market involves the conclusion of a transaction with delivery cash currency within two days, while currency futures are concluded on the basis of standard contract sizes with a duration of three months.
The price of a currency in the futures market and in the spot market tends to move simultaneously and unidirectionally, that is, when the price rises in one market, it also rises in another market, or vice versa. For example, if the price rises in the spot market for the British pound, then the price also rises. futures contract GBP / USD.
Open interest concept
Traders often confuse open interest with market volume.
It should be remembered that open interest is the total number of open contracts and not yet redeemed by delivery or counter transaction. That is, these contracts are still "open". When the buyer opens a new long position, the seller also opens a short position on the opposite side new position, while open interest increases by one contract.
It is also important to understand that if a new buyer buys from an old other buyer who is going to sell (close the position), then the open interest does not increase, since no new contract has been created. Open interest decreases if traders close positions. In the market, the open interest in total long positions is always equal to the total open interest in short positions. This situation is explained by the fact that for each buyer there is a seller on the opposite side of the transaction, or, as it is also called, a counterparty.
The relationship between trend and open interest
In general, open interest increases when new money comes into the market and traders are betting on the current direction of the market. That is, usually an increase in the general open interest favors the existing trend in the market, and indicates its continuation.
Conversely, open interest decreases when traders withdraw money from the market, thereby indicating a change in market sentiment, especially if open interest has previously increased.
With a steady trend in any direction (upward or downward), open interest should increase. This means that during an uptrend, long positions prevail, while in a downtrend, short positions dominate. A decrease in open interest is a potential warning sign that the trend is not strong enough to continue, since no significant amount of money has entered the market.
Therefore, rising open interest tends to indicate a continuation of the current price trend, be it an uptrend or a downtrend. Decrease or constancy of this indicator indicates that the momentum of the trend is weakening and is likely to end soon.
Trade application
Consider an example in the euro where futures have formed an uptrend. According to the chart in the upper window, there were several opportunities for a trader to enter a long position in the euro, either on a breakout of the resistance level or on a price rebound from the daily trend line.
In the lower window of the chart, you can see that open interest increased gradually as the euro strengthened against the US dollar. Please note that the price movement in the spot market (shown by the blue line) for EUR / USD occurred simultaneously with the EUR / USD futures (see Trading Strategy for the EUR / USD currency pair). In this case, the growth of open interest accompanied the medium-term trend and indicated to the trader that the trend was supported by the arrival of new money.
That is, using open interest, you can get a hint that the trend is in trouble. This clue is in the form of declining open interest when there is a trend in the market, regardless of whether it is a downtrend or an uptrend.
Conclusion
If you trade in the forex market, you can use the open interest indicators in the futures market to gauge market sentiment. The analysis of open interest will help the trader to confirm the strength or weakness of the existing trend and will allow him to position himself more correctly in the market.
Open interest is the number of open contracts (obligations) in a particular market. Open Interest is calculated for the futures and options markets. It is used as an indicator of market strength and also to measure the activity of trading in the market, but it is not the same as volume. Volume is also used as an indicator of market strength and to see how actively trading is going on in a given market. However, there are several important differences between volume and open interest.
Open Interest is usually valued along with the current price (bid, ask and last price) and volume when looking at quotes in the options or futures market.
How open interest is 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
The calculation of 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.
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 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, this 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 volume low, until finally traders want to close their positions or take new ones. With this, we will usually see an increase in volume.
Output
Open interest is not the same as volume. Volume shows how many contracts have changed hands during the day, while open interest only takes into account open positions. Growing open interest is usually seen as, confirming the current trend, as more and more traders (positions) participate in the movement. When open interest begins to decline during a trend, a reversal or range movement may be approaching as traders close out instead of fueling the fire. Profitable trading in any market conditions you can learn fromfrom company.
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