InvestorQ : As a futures trader, I am seeing open interest in the market falling sharply? What does this indicate and why is it happening?
ishika Banerjee made post

As a futures trader, I am seeing open interest in the market falling sharply? What does this indicate and why is it happening?

Answer
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Niti Shenoi answered.
7 months ago


There has been a huge unwinding of futures contracts as the volatility is just magnifying losses for most traders. If you look at index futures, the cumulative open interest (OI) fell sharply to 199,434 contracts on the NSE, lowest since November 2015. This is nearly half the average open interest in index futures contracts. There has clearly been sizeable long unwinding of trades by clients and proprietary traders. This has a downside because short covering support may be minimal and long positions may take time to build. A similar trend is also visible in stock futures. The cumulative OI of stock futures is 19% lower than their long-term average. Even the average daily turnover in the NSE F&O segment is falling and is lower by 13% compared to the annual average. That clearly shows limited interest.