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 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 graph above shows numerous instances of volume spiking above 50,000 contracts in the last several years.  These spikes in volume happen during fund rolling periods and/or times of high price volatility.  The week ending Thursday July 12 saw saw average volumes between 17,414 contracts (on July 11) and 25,891 contracts (on July 12).  On July 12 the Dec’18 had 77% of the volume while the Mar’19 had 15% of the volume.

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.  For example, on July 12 the Dec’18 and Mar’19 contracts had 69% and 18% of the open interest, respectively.  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).  For the week ending July 12, open interest shifted from a static pattern to a rising pattern.  This roughly coincided with the pattern of Dec’18 price settlements, suggesting that new speculative buying kicked in over Wednesday and Thursday.

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