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How Opening and Closing Trades Change Futures Open Interest

Article Quant Q&A · Author: Third-rate Coder
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Summary

The document explains why futures open interest can be an odd number even though every open contract has both a long and a short. Open interest counts contracts, not the two sides separately, so its value does not need to be even.

When both parties open positions, one contract is added. If one trader opens while the other closes, the number of open contracts stays the same. When both parties close positions, one contract is removed. These transaction pairings explain how open interest changes; the document provides no broader discussion of settlement procedures or the interpretation of open interest as a market indicator.

Key ideas

  • Open interest counts open contracts, with each contract containing a long and a short side.
  • When both traders open positions, open interest increases by one contract.
  • When one trader opens and the other closes, open interest is unchanged.
  • When both traders close positions, open interest decreases by one contract.
  • Because changes occur in single contracts, open interest can be odd.

Tags

FuturesMarket microstructure
Full text
# If every buyer in a futures contract has a corresponding seller, how can open interest ever be an odd number?


# If every buyer in a futures contract has a corresponding seller, how can open interest ever be an odd number?












I'm new to trading so pardon the entry-level question:

Here's a screenshot of today's settlement for the September 2021 S&P futures contract on the Chicago Mercantile Exchange:

The prior day's open interest is 2,584,125. If, in the futures market, every long has a corresponding short, how do we end up in a situation where the open interest is an odd number? Shouldn't the open interest always be even, seeing as how there's always a long and short side to every open contract?

Thanks for the help.

TRC

## Answer by D Stanley (score 2, accepted)

https://quant.stackexchange.com/a/66716

A buy to open and a sell to open increase open interest by 1, not 2 (both sides of one contract are created). A buy to close and a sell to open, as well as a buy to open and a sell to close, do not effect open interest (one contract side is created and another is closed). A buy to close and a sell to close reduce open interest by 1 (both sides of a contract are closed).

So it's perfectly reasonable for open interest to be an odd number.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.