Agilent said:
Ashish
Am not a Futures trader myself (though have done options several times), but tell me ... OI in futures can also be either long or short .... or is it always Long ?
If the former, then why (if at all) are the longs and shorts aggregated to show total OI and what is the meaning of that figure (or of trends in that figure)
AGILENT
OI in futures can never be long or short but it's rather both long or short. OI or Open Interest shows the number of contracts outstanding at a point of time. A contract has always two legs both buy and sell. If a person is selling a futures contract somebody else is buying it at the same time. The number of buy contracts at a time will always be equal to the number of sell contracts. Thus, OI is not long and short aggregated rather it's one of them only.
OI is similar to volume in this respect. For example, if I sell 100 shares and you purchase those 100 shares, the total number of shares traded or volume is 100 and not 200.
Similarly, lets say I enter into a forward contract to sell 100 shares (Futures are nothing but exchange traded forward contracts) with you and both of us don't settle it by the end of the day. So while I am short on 1 contract you are long on one contract as well. However, the no. of outstanding contracts is 1 only and that is what OI stands for. Thus, OI will be 1 and not 2.
Change in OI is to be used in the same way as volume is used. If increase in prices are accompanied by surge in open interest, it means that the speculators are betting on rise in price and the market is attracting new speculators. Thus, the upward move is expected to continue. However, change in prices with marginal no. of outstanding contracts shows lack of interest in activity and the move can be expected to die very soon unless and until supported by renewed activity.
Hope I am able to make sense.
Best Regards,
--Ashish