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.  For the week ending Thursday December 14,   ICE cotton saw above average volumes between 25,404 contracts (on December 11) to 34,036 contracts (on December 14).  On December 14 about 65% of the volume was concentrated in the most active Mar’18 contract, with another 21% of the volume in the May’18.

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 December 14 the Mar’18 and May’18 contracts had 65% and 19% of the open interest.  The more distant Dec’18 had 11% of the open interest.   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 December 14, the level of open interest mostly rose, particularly over Wednesday-Thursday, along with strong volume and higher price settlements.   This suggests new buying following the WASDE report tightening of the U.S. and world cotton balance sheet.

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