Market activity

Futures volume is a little tricky. Because every buyer has a counterpart on the short side, the two together constitute a single contract. Total contract volume in the example above is 27,394. Volume is not the same thing as liquidity, which is better measured by “open interest.”

Open interest is the total number of contracts still outstanding i.e., open positions that have not yet been offset. If a new buyer is creating a fresh long position and buys a contract, and the seller is also opening a fresh short position, open interest increases by one contract. However, if the buyer is just replacing a different long party who is selling, no new long position is being created; rather a change of ownership of an existing position is occurring. Open interest is still one because the number of open contracts remains the same.

Now, the same information, plus open interest in the center window. Open interest was flat through the entire period, at levels around 150,000. The new high on Aug. 12 is fishy, as it is not confirmed by a rise in open interest. A big upside move that is not accompanied by higher volume and an increase in open interest lacks real support; a significant amount of new money is not flowing into the market.

As a rule, when volume and open interest are rising, a price move will probably continue in the same direction. When they are flat or declining, the trend is probably going to end.