What does "open interest" indicate in futures markets?

• A. The number of stocks owned by an individual
• B. The total numbers of outstanding contracts that are unsettled
• C. The amount of commodities being traded
• D. The volume of daily trades in a market

Answer: (B)

Open interest in the futures markets refers to the total number of outstanding contracts that have not yet been settled. It is a key metric that provides insight into the liquidity and activity level of a particular futures market. When open interest increases, it indicates that new positions are being established, suggesting that market participants are actively entering the market, either by buying or selling contracts. Conversely, a decrease in open interest often suggests that positions are being liquidated or settled, which could indicate diminished trading activity.

This measure is distinct from other concepts such as stock ownership, the quantity of commodities traded, or daily trading volume. Understanding open interest helps traders assess market trends and can provide context for price movements and potential volatility in the futures markets.