What is Open Interest (OI) in the context of the futures market?

The total number of contracts traded in a single day. The number of contracts that have been squared off or closed. The number of outstanding contracts that have not yet been settled. The difference between the number of contracts bought and sold.

How does Open Interest (OI) differ from trading volume?

OI measures the number of contracts traded, while volume measures the number of outstanding contracts. OI reflects new contracts created, while volume includes both new and existing contracts traded. OI is a cumulative figure that increases throughout the day, while volume resets daily. There is no difference; both terms are interchangeable.

What does a rising Open Interest (OI) coupled with an increasing price typically signify in the market?

Long unwinding, where traders are closing out their long positions. Short covering, where traders are buying back contracts to close short positions. Increased trading activity and potential bullish sentiment. Decreased liquidity and a potential market downturn.

How can Open Interest (OI) data be used in conjunction with trading volume to make informed trading decisions?

By comparing the ratio of OI to volume, traders can gauge market sentiment and potential price movements. By analyzing the trends in OI and volume, traders can identify periods of high and low liquidity. By understanding the relationship between OI and price, traders can assess the strength of bullish or bearish trends. All of the above.

Why is it important to be cautious when there is an abnormally high Open Interest (OI) accompanied by rapid price fluctuations?

High OI indicates increased market stability and reduced risk. Rapid price changes suggest a healthy and efficient market. A combination of high OI and rapid price movements can signal excessive leverage and potential market volatility. There is no need for caution; this is a normal market behavior.