What does "open interest" refer to in trading?

What does "open interest" refer to in trading?

• A. The total volume of trades executed during a day
• B. The total number of outstanding, unsettled contracts in a market
• C. The number of contracts that expired in the last trading session
• D. The number of contracts purchased by traders for a specific day

Answer: (B)

Open interest specifically refers to the total number of outstanding, unsettled contracts in a market. This metric represents the total number of contracts that have been traded but not yet settled or closed. It is important for traders because it provides insight into the liquidity and activity of a particular market or security. A higher open interest indicates that there are more market participants involved, which can give traders an idea of market sentiment and potential price movement. Conversely, low open interest may signal less interest and liquidity in the market. Understanding open interest helps traders gauge whether a market is bullish or bearish, as an increase in open interest along with rising prices suggests bullish sentiment, while an increase alongside falling prices can suggest bearish expectations. The other options do not accurately describe open interest; they refer to different aspects of market activity such as trade volume or expiring contracts.

Open interest specifically refers to the total number of outstanding, unsettled contracts in a market. This metric represents the total number of contracts that have been traded but not yet settled or closed. It is important for traders because it provides insight into the liquidity and activity of a particular market or security.

A higher open interest indicates that there are more market participants involved, which can give traders an idea of market sentiment and potential price movement. Conversely, low open interest may signal less interest and liquidity in the market. Understanding open interest helps traders gauge whether a market is bullish or bearish, as an increase in open interest along with rising prices suggests bullish sentiment, while an increase alongside falling prices can suggest bearish expectations.

The other options do not accurately describe open interest; they refer to different aspects of market activity such as trade volume or expiring contracts.