What Is the Relationship between the Open Interest in a Futures Contract and the Liquidity of the Underlying Commodity?

Open interest in a futures contract represents the total number of outstanding contracts that have not been settled. It is a key indicator of the level of activity and interest in that contract.

A high open interest generally suggests a liquid and active market for the futures contract. This, in turn, can lead to increased liquidity in the underlying commodity market, as futures traders will often buy or sell the physical commodity to hedge their positions or to make or take delivery.

Therefore, a thriving futures market with high open interest can contribute to a more liquid and efficient market for the underlying commodity.