How to find open interest in a trade. Market open interest in relation to transaction volumes. Example of using open positions data
In stock trading, many look at open interest on charts. In the Quick trading terminal, I also set up information about open positions. I use the discovery of interest as additional information: new money comes in or money leaves the market. In my opinion, it is impossible to predict price movement based on open interest, and in general, predicting price movement in the future is not a rewarding and harmful business. We need to trade what we see now. The Internet has information on how to read it. OI will be drawn here as a determinant of the "wind", i.e. directions for transactions. But in my opinion, it is useless and unnecessary to consider it. You can view open positions in derivative financial instruments on the Moscow Exchange at the link:
is the number of open futures or option contracts. An open contract can be a buy or sell contract that has not yet been executed, closed, or 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 one.
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 based on price, volume and open interest.
Difference between open interest and volume is that the volume reflects the number of bought-sold contracts (turnover in the market), and open interest shows the size of the market (the amount of goods on hand).
If the buyer opened a new long position (buying the futures), and the seller, in turn, opened a new short position (selling the futures), then the open interest will be equal to alone, while the volume is equal to two.
To understand the mechanisms of the market, in my opinion, it is necessary to study open interest. It is necessary to observe the open interest on the tick chart of the RTS index futures and overlay a linear open interest chart on top of it and see how it behaves in a given situation.
How to set up open interest in Quick:
1. Add a new graph (indicator) to the chart
2. Click in the table "Add chart" new source and select a new window-press yes. New window - if you want that the open interest was separate and below the price and volume chart. Or select window 1, open interest (line chart view, anchored to the left axis) will be superimposed in the form of a line chart on the price chart.
market mood is one of the most important driving factors of trade. Its evaluation is extremely important in trading practice, but unfortunately, it is often overlooked by traders. Exist various ways measure the mood of the majority of market participants, but we will look at how this process is carried out using the analysis of the open interest indicator.
Forex Market and Open Interest
Analysis of the open interest rate in the derivatives market (futures, options) is a standard analysis tool, but for most traders who trade in the foreign exchange market, this topic is unfamiliar. In the last article, we focused on the fact that when trading on the Forex currency market, there is no information regarding the volume and open interest, since all transactions are carried out on the OTC market. As a result, there is no report on all market transactions.
Therefore, to obtain data on volume and open interest as important indicators forces of movements in the forex market, it is necessary to use data on open interest and volume in the currency futures market.
Relationship between spot and futures foreign exchange markets
Unlike the spot currency market, which does not have a centralized trading platform and unified system accounting, transactions in currency futures take place on exchanges, for example, the Chicago Mercantile Exchange (CME). These markets are quite strongly interconnected, and data on volume and open interest in the futures contracts market allows a trader to assess market sentiment in the Forex market. The cost of currency futures is determined mainly by the spot market price, which differs by the amount of forward swaps. The currency spot market involves the conclusion of a transaction with the supply of cash currency within two days, while currency futures are concluded on the basis of standard sizes contracts with a duration of three months.
The price of a currency in the futures market and in the spot market tend to move simultaneously and in the same direction, that is, when the price rises in one market, it also rises in the other market, or vice versa. For example, if the price rises on the spot market by the British pound, then the price of the GBP/USD futures contract also rises.
The concept of open interest
Traders often confuse the concept of open interest with the concept of volume in the market.
It should be remembered that open interest is the total number of contracts open and not yet settled by delivery or counter-trade. That is, these contracts are still "open". When the buyer opens a new long position, the seller also opens a new short position on the opposite side, and the 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 about to sell (close the position), the open interest does not increase because no new contract has been created. Open interest decreases if traders close positions. In the market, open interest on total long positions is always equal to total open interest on short positions. This situation is explained by the fact that for each buyer there is a seller, or, as it is also called, a counterparty, on the opposite side of the transaction.
Relationship between trend and open interest
In general, open interest increases when new money enters the market and traders bet on the current direction of the market. That is, usually an increase in total open interest favors the current market trend and indicates its continuation.
Conversely, open interest decreases when traders withdraw money from the market, thus indicating a change in market sentiment, especially if open interest has previously been rising.
With a steady trend in either direction (up or down), open interest should increase. This means that during an uptrend long positions dominate and during a downtrend short positions dominate. Decreasing open interest is a potential warning sign that the trend is not strong enough to continue as no significant amount of money has entered the market.
Therefore, rising open interest usually indicates a continuation of the current price trend, whether it is an uptrend or a downtrend. A decrease or invariance of this indicator indicates that the momentum of the trend is weakening and it is likely to end soon.
Application in trade
Consider the example of the euro, when futures formed an uptrend. According to the chart in the top window, there were several opportunities for a trader to enter a long euro position, either on a breakout of a resistance level or a breakout from a daily trend line.
In the bottom 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 on the spot market (shown in blue line) on EUR/USD occurred simultaneously with euro futures (see EUR/USD trading strategy). In this case, an increase in open interest accompanied the medium-term trend and indicated to the trader that the trend was being supported by new money coming in.
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 the market is trending, whether it is a downtrend or an uptrend.
Conclusion
If you are trading in the forex market, you can use the open interest indicators in the futures market to gauge market sentiment. An open interest analysis will help a trader confirm the strength or weakness of an existing trend and allow them to better position themselves in the market.
Everyone knows that the action is security. And it is produced in a clearly known quantity. That is, if the company issued one million shares, then the next day there will be the same number. In most cases of your ownership of the stock, this will be the case.
It turns out that the number of shares in circulation is fixed. And it's known for sure. Here, OF COURSE, it is worth remembering that a share is the right to a share in the company, therefore each holder is entitled to a proportional share of PROFIT. This is the foundation of the basics.
What is it? This is not a promotion. This is a standard contract for the supply of a share (or any other exchange-traded asset). It does not give the right to a share in the company. This is a contract for the supply of an asset. Simple and clear. It is also called "Fixed Contract". And the point here is not in a hurry, but in a pre-known deadline for the execution of the contract.
Two participants in the transaction entered into an agreement (contract) for the supply from one person (buyer) to another (seller) by the date of performance (contract expiration) of the asset specified in the agreement. It's that simple. In the framework of this article, we do not need more.
An important point is the very "conclusion of the contract." What is worth understanding:
- The exchange simply creates a standard contract for a specific asset. And invites everyone to trade an asset through this contract. Standardization at its finest.
- Initially, the number of signed contracts is equal to zero. The total number of open contracts at the time the contract was created is zero.
- When the auction starts, then a trader comes who is ready to open a long, and the second short, then their joint transaction creates a new contract.
For a new contract, a meeting of a “clean” market and a “clean” limit is required. By this term I mean a deal where money is exchanged for a position. Only in this combination will we get a new open contract. And the number of OIs will increase. Sounds very cool. Very straight forward.
But here is the error: what happens if one of the two counterparties has an open position and closes it. And the second counterparty is “clean”? Number of open contracts WILL NOT CHANGE. It is in this moment that the whole force of this flow suffers.
IMPORTANT: When opening one new contract, the number of "OI" will increase not by +1, but by plus two. The exchange counts two sides. Therefore, the number of open contracts is always even.
It is very important to understand that there are periods of "natural" growth of "OR" when the futures contract becomes actual.
Far contracts are always "empty". But the closer to the actual date of the contract, the more "OI" will be. And if the life of the contract comes to an end, then there is a natural drop in the number of open contracts. Since traders close positions in old contracts and shift to new ones that are more relevant.
Everything. That's the whole logic of "open interest". Why is it so interesting to traders? Well, to be honest, this is an additional stream to the standard pure stock information:
- (as the resultant of the first two).
In conditions where the accuracy of information is decisive, it is always useful to obtain additional and free "clean" information. And if its understanding is inaccessible to the majority, then this is also an advantage.
Our "Moscow Exchange" provides a real-time data stream! There is no such possibility on CME!
What is the secret and difficulty?
"OI" does not give future direction. Doesn't show long or short! You must understand this. The exchange would not give away information that reveals secret data.
Somehow I read in an analytical article from a brokerage company that since OI is growing on an upward trend, the trend will be stable. This is not true. For open interest to grow, both a buyer and a seller are needed. Also for falling. Think about this thought.
We have identified a few of the most effective methods reading. All of them are implemented in the Inside MMA terminal:
- Ribbon connection. When you can track the change in each transaction. Sounds cool, but there is an error here. And the error is that if there is not a “net” purchase + “net sale”.
- Determination of the percentage of speculative trading activity. An interesting aspect that allows you to evaluate the ratio of trading volume to new money ... or, conversely, the withdrawal of capital from the futures.
- Segmentation of the flow of open interest separately for purchases and sales. Separate accounting. This works well on horizontal levels.
- Alerts for too much number change in one trade.
The best thing is to use the "OI" figure as an indicator of the involvement of new participants in the trade. And the fall of this number is the way out. Unfortunately, trend prediction with this data stream is not very accurate. But to understand when new money comes is always good. more eyes looks at the movement, so the movement can turn out to be more emotional.
Recall: It would be a cardinal mistake to assume that if the number of OIs falls on growth, then this is an outcome of buyers. It is more correct to consider that this is an exit for both buyers and sellers. Pulling it into a trend is an assumption. And very serious.
Let us remind you once again on what condition the contract disappears: only in the case of a meeting of orders from the holder of a net long position and the holder of a net short position. In this case, the contract "collapses".
Where can I get information about the current number of open contracts?
It's in the terminal "Inside mma". The value is available at any time during the current trading session. Both in absolute value and for the period:
By the way, options also have “open interest”! Any derivative that has no matter what the underlying will have an open interest.
Also, the most up-to-date information is available on the exchange website. On the page of each futures contract. 
By the way, the options board shows the number of open contracts for each strike. This is also an interesting point in the analysis! The more experience you have in reading the market, the more different nuances you will find in the patterns that are associated with the number of open futures contracts.
What other techniques exist?
1) In the terminal "Insider mma" the measurement module DELTA LI (Delta bs) is implemented. Separately for buy trades and sell trades. This was done taking into account the impact of a market order. And allows us to see the separation of priorities. How can this be used for market research? The most optimal is segmentation by deal size. Just like in the tape. Only with delta on "OI". True, it takes up a lot of space ... you will need 4 charts for each contract. But it's good to try.
2) There is also an open interest OHLC chart in the terminal. Available in our terminal and in quick.
3) Segmentation into legal entities and individuals. The classic table that almost any derivatives exchange gives. When I heard about it for the first time, I thought: “Here it is! Grail!))". But the reality turned out to be more boring. There is even a whole line of analysis of such reports. But for active trading, they definitely do not give an incredible advantage. Which is logical. You can see the change in positions separately for these two categories. It is believed that legal entities are “Smart money”, and individuals are a crowd.
What is its minus? It's given away at the end of the day. No real time. No identification of where exactly. It is necessary to conduct a detailed analysis at the end of the day to try to understand exactly where the transactions were. For real time, we use the terminal, looking for a surge in trading activity, then the biggest changes. We are trying to find patterns.
What's the plus? Magic division of transactions into categories individuals and legal entities. In conditions of complete anonymity of transactions, such information is very interesting. Although inaccurate, only at the end of the auction, but segmentation. The market becomes a little less impersonal for the trader.
It is believed that the accounts of legal entities are the same "smart money" (smart money) ... but from the standpoint of your experience, you should not place high hopes on them. Everyone is wrong.
Usually traders prefer to think that they should trade against the crowd. That is, we look at what happens to the “OI” indicator for legal entities. persons, and then take their side. If you do this, you always look at the relationship with the trend. By the way, it is better to do this not in a trend, but on consolidations. In this case, the efficiency will be better. Much!
Good luck in learning this exchange stream.
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 the strength of the market and also to measure the trading activity in the market, but it is not the same as volumes. Volume is also used as an indicator of market strength and to see how active a given market is trading. 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) are trading ES futures, then their trades could affect open interest as follows:
- Trader A opens a long position by buying one contract
- Open interest increases to 1
- Trader B goes long by buying four contracts
- Open interest increases to 5
- Trader A exits the position by selling one contract
- Open interest drops to 4
- Trader B goes short by selling four contracts
- Open interest increases to 8
The calculation of open interest becomes more complicated if we take into account that each trader buys/sells from another market participant, who, accordingly, sells/buys. Sometimes both parties open trades, increasing the open interest. At other times, one of the parties will close their deal, and the other will open it; this will not affect open interest. It may also be that both sides 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 opening deals and decreases when exiting positions.
Open interest is often used as a confirming (or non-confirming) signal of the current price movement. But he, in itself, does not give any indication of the direction of price movement. Open interest only tells you how many contracts are currently in open positions, it does not indicate whether you are long or short.
Increasing open interest indicates that the current price trend is in force, because the number of contracts "in play" is growing, which indicates an increase in activity and the presence of market participants' interest in the current movement. Decreasing open interest shows 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 rising price indicates that the uptrend may continue, while declining open interest along with rising price suggests that the uptrend may soon reverse.
Open interest can also be used to predict whether the market will be trending or in a range. Growing open interest shows that the share of new positions is increasing. This suggests that there is active trading in this market, and the probability of a trend is high. Decreasing open interest shows that the share of new positions is decreasing. This suggests that this market may enter a period of reduced trading activity, and a range movement is likely.
A low open interest rate in the options or futures market means that there is no active market for that 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 in high volume on a particular day. Since open interest reflects open positions, such positions can remain open and volume low until traders finally want to close their positions or take on new ones. In doing so, we will usually see an increase in volume.
Conclusion
Open interest is not the same as volume. Volume shows how many contracts changed hands during the day, while open interest only counts open positions. Rising 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 in a trend, a reversal or range move may be approaching as traders cover their positions instead of adding fuel to the fire. Profitable trading in any market conditions can be learned fromfrom company.
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– Open interests, understanding and use in trading
— 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
In the futures market, unlike the stock market, there is 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 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 expired. That is, one must understand that a futures contract is a contact between two persons (although they may not know each other), if one sells, then the second buys.
Now let's try to understand how this can help in making transactions. 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 profit of the “buyer” and he will have to close the deal, that is, buy back this contract from the buyer at a higher price (analogous to a margin call). At the moment of closing the transaction, the former seller becomes a buyer, since in order not to become bankrupt he needs to close the losing transaction as quickly as possible. Now suppose that we have not one such seller, but 100,000 people, respectively, these 100,000 people are ready to close their losing trades at any price in order to prevent losses.
Thus, in the case of high "open interest" and a strong move up at some point in the market, there is a rush due to the fact that a large number people suffering losses have to buy back their losing positions and the more of these people, the stronger the hype at this moment, accompanied by an increase in price.
There is one more important point, we should not forget that at the time of strong movements, one of the parties (“sellers” or “buyers”) receive significant profit, which can also be used as leverage in order to disperse 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) are trading ES futures, then their trades could affect open interest as follows:
Trader A opens a long position by buying one contract
Open interest increases to 1
Trader B goes long by buying four contracts
Open interest increases to 5
Trader A exits the position by selling one contract
Open interest drops to 4
Trader B goes short by selling four contracts
Open interest increases to 8
The calculation of open interest becomes more complicated if we take into account that each trader buys/sells from another market participant, who, accordingly, sells/buys. Sometimes both parties open trades, increasing the open interest. At other times, one of the parties will close its deal, and the other will open it; this will not affect open interest. It may also be that both sides 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 opening deals and decreases when exiting positions.
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 large, it means that there are many sellers and buyers on the market, which means that the chances of filling your order by best price increase.
It should be noted that the price of the underlying asset can quite significantly affect the value of open interest. Options on the money - where the underlying asset's strike price is or very close to - tend to have the most trading activity. If the price of the underlying asset has been near some option strike for a long time, for example, with a stock price of $15 near the 15th strike, then it can be expected that the value of open interest at this strike will be greater than at 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 the 15th strike has become central, the trading volume will not have time to increase due to the short duration of the price. And accordingly, the liquidity of this strike may differ from the liquidity of 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 it is unlikely that you will be able to fill your order at a good price. Therefore, it is desirable to choose those option contracts whose open interest and trading volume are high.
OI - as an indicator of the direction of price movement
As noted above, cash options usually have highest value open interest. Why exactly it is so hard to say, maybe cash 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 whether it will go at all.
Therefore, if you see that the open interest value of cash options is not the highest, then you have to ask yourself: why? The answer may be simple and lie in the fact that, as mentioned above, the price has recently come to this level and the central options have not had time to cancel. 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:
Open Interest Interpretation
Forex open interest is the total number of open and unliquidated short and long positions on a contract by the end of the day for all trading participants. Data on open interest for traders trading on the forex market, by analogy with data on trading volumes, should be looked for on the exchange of futures contracts of the corresponding instrument. Below is an example of a chart with an open interest indicator.
Official data from the exchange on open interest are received with a delay of one day and, accordingly, are displayed on the charts with the same delay. Changes in open interest indicators allow a trader to judge the degree of activity of all market participants, and in conjunction with the analysis of trading volume, to analyze the strength or weakness of the current market trend.
Open interest is often used as a confirming (or non-confirming) signal of the current price movement. But he, in itself, does not give any indication of the direction of price movement. Open interest only tells you how many contracts are currently in open positions, it does not indicate whether you are long or short.
Increasing open interest indicates that the current price trend is in force, because the number of contracts "in play" is growing, which indicates an increase in activity and the presence of market participants' interest in the current movement. Decreasing open interest shows 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 rising price indicates that the uptrend may continue, while declining open interest along with rising price suggests that the uptrend may soon reverse.
Open interest can also be used to predict whether the market will be trending or in a range. Growing open interest shows that the share of new positions is increasing. This suggests that there is active trading in this market, and the probability of a trend is high. Decreasing open interest shows that the share of new positions is decreasing. This suggests that this market may enter a period of reduced trading activity, and a range movement is likely.
A low open interest rate in the options or futures market means that there is no active market for that 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 in high volume on a particular day. Since open interest reflects open positions, such positions can remain open and volume low until traders finally want to close their positions or take on new ones. In doing so, we will usually see an increase in volume.
Conclusion
open interest is important indicator, which allows you to accurately assess the situation on the market.
Some mistakenly believe that open interest is similar to 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 rises, it confirms the current trend as traders open more and more positions. When open interest begins to decline during a trend, there is a high chance of a reversal or range move 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 for movement is low and the levels are likely to hold, if it grows - it is worth stopping and thinking, since a high "open interest" can give the movement a certain impulse to break through the level.
The material was prepared by Dilyara specifically for the site