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, September 12, saw average volume levels, with the exception of the 62,165 contracts traded in the mini-rally on September 12 (presumably short covering).  On September 12 the Dec’19 had 66% of the volume while the Mar’20 had 25%.

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 September 12 the Dec’19 and Mar’20 contracts had 62% and 24%, 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 September 12, the open interest trend was higher.  Together with higher prices, this suggests some new longs in addition to presumed short covering.

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