Open interest in futures trading shows the total number of contracts that are currently open and not yet closed. It tells you how active and liquid a futures contract is. Higher open interest means more traders are interested, which can help you make better decisions while trading futures. It is a key indicator to understand market strength and trend.
What Is Open Interest in Futures Trading?
Open interest in futures trading means the total number of outstanding futures contracts that have not been settled. It increases when a new buyer and seller create a new position. It decreases when both close their positions. Open interest tells you how many people are actively trading in that futures contract.
Why Is Open Interest Important in Futures?
Open interest helps you know if a futures contract is actively traded. If open interest is high, it means many people have positions in that contract, making it easier to enter or exit trades. It also helps you identify possible price trends by showing if traders are adding or closing positions.
How Does Open Interest Indicate Trend Strength?
When open interest increases along with rising prices, it confirms a strong uptrend. If prices fall and open interest also rises, it confirms a downtrend. But if open interest falls while price rises or drops, the trend may not be strong. This helps you know if the current market move has support from traders.
How Is Open Interest Different from Volume?
Volume shows how many contracts were traded in a day, while open interest shows how many contracts are still open. Volume resets daily, but open interest keeps building or falling. High volume with high open interest means strong market activity. Both together give a clear picture of futures trading strength.
How to Use Open Interest for Entry and Exit?
Before entering a futures trade, check if the contract has high open interest. This ensures good liquidity and smoother trade execution. Also, rising open interest with price movement confirms a trend. Use it with support and resistance levels to find the best entry and exit points.
What Are the Signs of Trend Reversal in Open Interest?
If price continues to rise but open interest starts falling, it could mean traders are booking profits and the uptrend may reverse. Similarly, if price is falling but open interest drops, the downtrend may be ending. Watching these changes helps you avoid late entries and identify turning points.
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