Chartered Market Technician (CMT) Practice Exam

Open interest in futures trading represents the total number of outstanding contracts that have not yet been settled or closed. This figure is significant because it provides insight into the level of activity and interest in a particular futures market. A high open interest indicates that there are many contracts still active, suggesting that traders have strong positions in the market. This can reflect overall market sentiment; for instance, increasing open interest alongside rising prices may signal that new money is entering the market, while decreasing open interest could indicate that positions are being closed.

Understanding open interest is also essential for gauging liquidity, as higher open interest typically correlates with better liquidity. However, liquidity is not solely determined by open interest; other factors such as trading volume and market depth also play vital roles. While the number of investors and total liabilities might relate tangentially to trading activity, they do not directly define what open interest measures.

Thus, focusing on the number of outstanding contracts provides a clear, quantifiable metric for assessing market engagement and helps traders make informed decisions.