# Volume and Open Interest

When investors who are used to trading stocks first get into futures, most of what they see makes sense. Open, High, Low, Close, Volume – these are all fairly intuitive. But in the futures trade, there’s another number we sometimes use: open interest (OI). So what’s the lowdown on volume, open interest, and the role that these two stats play in the world of managed futures?

Simply put, volume refers to how many contracts changed hands on a given day. For example, suppose that George buys 20 contracts from John (who is now short 20 contracts to make the other half of the trade). Volume for the day would go up by 20. Now suppose John decides to close out part of his position by buying 10 contracts from our third friend Thomas (who is now short 10 contracts). Volume goes up again, to 30. Simple stuff.

OI is a little more complicated, because it refers to a count of how many contracts are “in play.”  In our above example, when George buys 20 contracts from John, OI would be the same as the volume: 20. But, after John buys 10 contracts from Thomas, OI would be unchanged, at 20. This is because the number of open contracts is still 20 – George is long 20, John is short 10, and Thomas is short 10.

To take the example one step further – if John closes out the rest of his position, buying 10 contracts back from George, volume would increase by another 10 – a total of 40 for the day. But OI would decrease from 20 to 10, to reflect the smaller number of active contracts in play (George is long 10, and Thomas is short 10).

So, what does all this mean for CTAs? Volume and OI are important factors in market selection. Volume speaks to liquidity, and OI speaks to how much a given trade will potentially move the markets. If a CTA gets too large for a market – that is, it’s trading so many contracts that it makes up a significant portion of that market’s OI – that can cause a problem. And it’s not just a troublesome for profits – due to the CFTC’s position limits, making huge trades in some markets may break the rules, and bring sanctions for the trader.

As a result, from market to market, you’ll see differences in how big programs can get before they really start to move the market with their trades and either stop accepting new capital or the program starts suffering. For traders in smaller markets, such as agriculture, that level may be as low as \$50 or \$60 million. Larger markets, like metals, can stomach more – up in the hundreds of millions. Global macro traders (managers trading 30+ world markets) can go even higher, handling a billion or two in AUM without a problem. Currency markets, because they’re so huge, allow FX traders to handle several billions of dollars before they start to be bogged down by size.

For managed futures, size does matter – volume and OI help CTAs determine whether a particular market is right for them. For investors and as a part of our due diligence process, asking the question of “what is the capacity” in any individual managers strategy is a serious question that the most forward-thinking managers are analyzing well in advance of volume or OI becoming an issue for their strategy.

## One comment

1. I like seeing the open interest when trading things like options because it shows you where the distribution of people are holding positions at…

Do you trade futures options as well?

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.