Open Interest

Both short term and long term traders often like to know the general sentiment of the markets (e.g. are they going up, is trading volume increasing, are other traders pensive or bold?). As a result there are several indicators that have been developed to gauge the overall condition of the markets. These indicators include the Trin, the Ticks, and the Tiki (collectively known as the market internals), various pre-open volume measurements (such as the volume from 8:30 AM to 9:30 AM Eastern Time), and something called open interest.

Open interest is a calculation of the number of currently active trades for a particular market. Open interest is calculated using futures and options contracts, so open interest is available for most of the popular futures and options markets (such as the index and currency futures markets). Open interest compares the rates at which new trades are being opened, and existing trades are being closed, so it shows whether trading activity is increasing or decreasing, which can be very useful in determining the upcoming market conditions.

The full definition of open interest, along with a description of how open interest is calculated, and examples of how it is used in trading, can be found in the open interest glossary entry.