Read about it here: The Complete Guide to Anchored VWAP Indicator Conclusion There are indicators that work specially with volume like the AVWAP.

Higher volume indicates good liquidity and can be used with other indicators to anticipate potential price moves. Volume is an account of all transactions, whether it’s a position entered or closed.Īs you may know by now, open interest is simply an account of all positions entered (not closed).Īnother key distinction between volume and open interest is that volume changes on a daily basis, while open interest can remain unchanged for extended periods of time. However, there’s a big difference between the two. Open interest may be confused with volume. Thus, keeping an eye on open interest can often prove to be useful in anticipating major market trends.

Falling open interest indicates that the market participants are liquidating their positions and the prevailing price trend is about to change or come to an end.

Whatever the trend, it might indicate a continuation of that trend.

Rising open interest means that new money is entering the market.

Tracking open interest on a regular basis can be useful because of the valuable insights into market direction and sentiment. The following image will show you what open interest looks like on the option chain. It helps a trader to position their trade efficiently.īy the way, you can check out the open interest on the Advanced Option Chain. While volume resets every day, the open interest gets carried forward. Higher liquidity means that orders will get fulfilled at good prices and that would lead to lower impact costs. This clearly means that high liquidity is good for traders. When there is a large open interest for a contract, it indicates a large number of buyers and sellers for it. If a security or an index has no open interest, then there is no liquidity in it. Open interest in share market also gives information about the liquidity of the market. Bullish here represents a strong market while bearish represents a weak market. The above table will give a guideline for any trader to position their trades. To make it easier for you, we’ve compiled a list of inferences you can draw with open interest against price. Open interest can be interpreted without much effort. The last combination could be one old buyer selling it to one new buyer and open interest does not change. When a buyer and a seller both close an existing position, the open interest for that particular contract decreases by 1. Make no mistake, the contract increases only by 1. 1 buyer and 1 seller, open interest increases by one contract. If two traders are entering into a trade i.e. The derivative contracts will be deducted from the open interest only if a position is closed.Ĭhanges in open interest can be attributable to the number of traders entering or exiting positions on derivative contracts for a particular scrip. This is important because open interest reflects open positions, regardless of whether it’s a buy or sell type trade. Why? Because their “positions” are active.

Jer sells five currency futures (short), the open interest will be 7. Karan C buys two currency futures (long) and Mr. Each trade that takes place on the exchange has an impact on open interest.įor example, if Mr. Open interest in stock market is easy to calculate.

The Chaikin Money Flow indicator is also used to measure the flow of money in and out of a financial instrument, although it works differently. Open interest shown on the Advanced Option Chain You could, in fact, view open interest as a measure of desirability – what’s being bought, what’s being sold, what’s gaining no traction at all, and so on. Since open interest is a measure of money flowing in or out of futures and options contracts, it is a direct measure of liquidity that can be used to identify trends and confirm trades. That’s why open interest is defined as the total number of derivative contracts that haven’t: An outstanding contract is any future or option that hasn’t been settled, exercised, or offset by a buyer or seller. Open interest is a tool for technical analysis that shows the total number of outstanding contracts at a point in time.

Open interest options