Volume and Open Interest Numbers in Futures

Another piece of important information should be included on the bar chart-volume. Volume represents the total amount of trading activity in that market for that day. It is the total number of futures contracts traded during the day or the number of com­mon stock shares that change hands on a given day in the stock market. The volume is recorded by a vertical bar at the bottom of the chart under that day's price bar. A higher volume bar means

FUTURES OPEN INTEREST

Open interest is the total number of outstanding futures contracts that are held by market participants at the end of the day. Open interest is the number of outstanding contracts held by the longs or the shorts, not the total of both. Remember, because we're dealing with futures contracts, for every long there must also be a short. Therefore, we only have to know the totals on one side. Open interest is marked on the chart with a solid line along the bottom, usually just above the volume but below the price.

Total Versus Individual Volume and Open Interest Numbers in Futures

Futures chart services, along with most futures technicians, use only the total volume and open interest figures. Although figures are available for each individual delivery month, the total figures for each commodity market are the ones that are used for forecasting purposes. There is a good reason for this.

In the early stages of a futures contract's life, volume and open interest are usually quite small. The figures build up as the contract reaches maturity. In the last couple of months before expiration, however, the numbers begin to drop again. Obviously, traders have to liquidate open positions as the contract approaches expiration. Therefore, the increase in the numbers in the first few months of life and the decline near the end of trading have nothing to do with market direction and are just a function of the limited life feature of a commodity futures contract. To provide the necessary continuity in volume and open interest numbers, and to give them forecasting value, the total numbers are generally used. (Stock charts plot total volume figures, but do not include open interest.)