123ArticleOnline Logo
Welcome to 123ArticleOnline.com!
ALL >> Investing---Finance >> View Article

Benefits Of Open Interest

Profile Picture
By Author: Maithili Pawar
Total Articles: 30
Comment this article
Facebook ShareTwitter ShareGoogle+ ShareTwitter Share

Derivatives are handy for price fluctuation protection. These get traded on exchanges such as commodities, stocks, and currency, apart from being a hedge against price fluctuations.

Two types of derivatives exist in the market – futures and options.

Trading in F&O allows those who are disinterested in the underlying asset to profit from price fluctuations. Most F&O market participants are speculators, who are not involved in the commodity at all.
This is good because it adds to the competitiveness of the market.

To make things lucrative, the open interest gets applied to F&O. It is the cumulative amount of outstanding contracts which are owned at the end of the day by market participants.

It may also be specified as the total number of futures contracts or option contracts not yet exercised (squared off), expired, or fulfilled through delivery.

It primarily relates to the futures market. Open interest, or the total number of available securities contracts, is also used to validate patterns and trend reversals for contracts of futures and options.
What is open interest? It tracks capital flows to the futures market.

There must be one buyer of that contract for each seller of a futures contract. Therefore, a seller and a buyer combine to create just one deal.

Therefore, to determine the total open interest for any given market, we only need to know the totals from either side, buyers or sellers, not the sum of both.

The status recorded each day reflects the increase or decrease in the number of contracts for that day and gets displayed as either a positive or negative number.

How to calculate Open Interest?

Every trade concluded on the exchange affects that day's level of open interest.

For example, if both parties introduce a new position to the trade (one new buyer and one new seller), open interest will grow by one contract.
When both traders close a new or old position, then open interest would be rejected by one deal.

The third and final possibility is that an old trader will transfer his position to a new trader. The open interest is not going to change in this case.

Benefits of monitoring open interest

Some conclusions about the day's operation can be drawn by tracking the fluctuations in the figures at the end of each trading day.

Declining open interests means the market is liquidating and implies ending the prevailing price trend. Open interest information can prove useful towards stopping significant market movements.

Author bio: Maithili Pawar is a financial expert with 5-plus years of experience in investment banking. In her free time, she writes on trading topics. In this, she has explained everything about open interest and listed its benefits

Total Views: 34Word Count: 435See All articles From Author

Add Comment

Investing / Finance Articles

1. 3 Factors To Consider Before Making An Ncd Investment
Author: Maithili Pawar

2. How Relative Strength Rating Helps You Pick Outstanding Growth Stocks
Author: Marketsmith India

3. Share Market Tips : How Relative Strength Rating Helps You Pick Outstanding Growth Stocks
Author: Marketsmith India

4. Bitcoin Trader - The Fraudulent Bitcoin Trading Firm
Author: Alex Miller

5. Key To Finding Great Stocks : Why The Buyer Demand Rating ?
Author: Marketsmith India

6. Short Term Personal Loans That Skip The Credit Check Process
Author: Novlik Nisudan

7. Things To Know Before Getting An Endowment Policy
Author: Shaheen Shaikh

8. Overcome Your Financial Expenses With Car Title Loans
Author: Ethan Carter

9. Student Loan Scams And How You Can Save Yourself From Being A Victim Of One
Author: Alex Miller

10. The 6 Cryptocurrency Exchanges In India Which Can Be The Saviour Of The Economy
Author: coinbreze

11. Sbi Has Launched New Product On Real Estate Finance
Author: Stock Investor

12. Distribution Days: How To Track Market Weakness In A Confirmed Uptrend
Author: Marketsmith India

13. Expert Views On Gold And Silver Prices
Author: Stock Investor

14. How To Spot A Bullish Base-on-base Chart Pattern
Author: Marketsmith India

15. Busting The Investing Myth That Penny Stocks Can Lead To Marvellous Riches
Author: Marketsmith India

Login To Account
Login Email:
Forgot Password?
New User?
Sign Up Newsletter
Email Address: