Volume and Open Interest

The current allocation of volume, open interest, and a lot more cotton futures information, can be found on the ICE futures website under “Featured Reports”.  Volume (viewed above as the green line) is defined as the total daily number of contracts traded in a daily session. The level of volume is often used to gauge the strength of continuing or changing trends. Typical cotton daily volume bounces around between 10,000 and 25,000 contracts.  The week ending Thursday, November 19 saw above average volumes between 26,004 (on November 18) to 48,080 contracts (on November 13).  The wrapping up of fund rolling is the reason for some of the high volumes, e.g., selling nearby and buying Mar’21.  Not surprisingly, the Dec’20 and Mar’21 contracts had 22% and 60% of the volume, respectively, as of November 19.

Open interest (the red line above) refers to the number of active positions at the end of the day (not double counting both the buyer and seller). Open interest by contract has a similar front month concentration as does volume, e.g., The Dec’20 and Mar’20 had 1% and 63% of the open interest, respectively, as of November 19.  Open interest does not fluctuate as much as daily volume, but there are patterns where sharp surges or declines in open interest are associated with sudden rallies or sell-offs (often accompanied by spikes in volume).  The week ending November 19 saw open interest steadily erode, coinciding with mixed price settlements.  There may have been some short covering underlying this pattern, but it is hard to tell during the fund rolling.

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