2006-11-27 02:16:34 · 2 answers · asked by RAMESH B 1 in Business & Finance ➔ Investing
Open interest means how many contracts are still outstanding on a forward/future/option.
Unlike a stock, you enter and close a future/option with the same counterparty. Meanwhile, you can buy and sell a stock to a different counterparty. Thus, it shows how many contracts have yet to be completed.
Addendum: Yes, 4xTrader is correct that forwards & options can be settled with another counter-party, if arranged via the broker. It's called a "cash settlement", when somebody pays cash to take over your end of a contract. To be fair, futures can also be cash settled. However, I didn't want to unnecessarily complicate the answer to "what is an open interest" as the point was that open interest relates to an outstanding contract that needs to be settled. *shrug* Whatever. No big deal.
2006-11-27 02:40:53 · answer #1 · answered by csanda 6 · 0⤊ 0⤋
Csanda is correct on the first part, but not the second. Yes, open interest is the number of contracts still open and working in the market, contracts that have not been closed.
On forward contracts, you settle with the same counter-party, but on futures and options, you may open the contract with 1 counter party and settle with another. It's whoever the brokers can match a buy order with a sell order. It doesn't have to be the same counter-party.
2006-11-27 11:08:59 · answer #2 · answered by 4XTrader 5 · 0⤊ 0⤋