Explain the Concept of “Open Interest” in a Futures Market and Its Significance

Open interest is the total number of outstanding futures or options contracts that have not yet been closed, exercised, or expired. It is a key indicator of market depth and liquidity.

High open interest suggests strong market participation and confidence in the derivative. A rising open interest alongside a rising price can signal a strong uptrend, while a falling open interest can indicate a loss of momentum or a shift in market sentiment.