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 December 6 saw average-to-higher volumes between 18,274 (on November 30) to 45,884 (on December 3, when prices traded almost three cents higher and settled one cent higher).  On December 6 the Mar’19 had 69% of the volume while the May’19 had 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 6 the Mar’19 and May’19 contracts had 60% and 16% respectively, while the maturing Dec’18 has dwindled to almost nothing.  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 6, open interest pattern rose and fell.  Settlement prices followed a static path across the week.

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