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What is open interest and how it effects stock market.?

Open Interest indicates the total gross outstanding open positions in the market for that particular series. It is the most useful measure of market activity, which is also published by exchanges and used for technical analysis. Open interest indicates the liquidity of a market and is the total number of contracts, which are still outstanding in a futures market for a specified futures contract.

A futures contract is formed when a buyer and a seller take opposite positions in a transaction. This means that the buyer goes long and the seller goes short. Open interest is calculated by looking at either the total number of outstanding long or short positions - not both.

Open interest is therefore a measure of contracts that have not been matched and closed out. The number of open long contracts must equal exactly the number of open short contracts.

Open interest is also used in conjunction with other technical analysis chart patterns and indicators to gauge market signals.

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