Question

You liquidate your position, in the liquidation operation the counterparty of your 40% position is ABC who holds big position in the long side, and your counterparty of the remaining 60% position is ABC who holds big position in the short side. What is the net change of the open interest after your liquidation transaction?

Answer 1

Open interests is the total number of outstanding contracts that are held by the market participants at the end of each day. For each seller of a contract there must be a corresponding buyer of the contract. Open interest measures the flow of money into the futures market.

Each completed trade has an impact on the level of open interest at the end of each day. For instance, if 2 parties are initiating a new position, then the open interest will increase by one new contract. If 2 parties are liquidating an existing position, then the open interest will decrease by one contact. If one of the market participants is liquidating his or her position, then open interest will not change as that position may be filled by another market participant.

In the given case, since only one market participant is liquidating the position, there will be no change in the open interests position since the position of the liquidated party can be filled by another market participant.