Understanding and deciphering the prices of futures trade is the first challenge for anyone planning to venture in futures trading. Economic dailies and exchange websites http://www.nseindia.coma/ and http://www.bseindia.com/ are some of the sources where one can look for the daily quotes. Your website has a daily market commentary, which carries end of day derivatives summary alongwith the quotes.
The first step is start tracking the end of day prices. Closing prices, Trading Volumes and Open Interest are the three primary data we carry with Index option quotes. The most important parameter are the actual prices, the high, low, open, close, last traded prices and the intra-day prices and to track them one has to have access to real time prices.
The following table shows how futures data will be generally displayed in the business papers daily.
Series | First Trade | High | Low | Close | Volume | Value (Lakh) | No of trades | Open interest |
BSXJUN | 4755 | 4820 | 4740 | 4783.1 | 146 | 348.70 | 104 | 51 |
BSXJUL | 4900 | 4900 | 4800 | 4830.8 | 12 | 28.98 | 10 | 2 |
BSXAUG | 4800 | 4870 | 4800 | 4835 | 2 | 4.84 | 2 | 1 |
Total | 160 | 38252 | 116 | 54 | ||||
Source: BSE
· The first column explains the series that is being traded. For e.g. BSXJUN2000 stands for the June Sensex futures contract.
· The column on volume indicates that (in case of June series) 146 contracts have been traded in 104 trades.
· One contract is equivalent to 50 times the price of the futures, which are traded. For e.g. In case of the June series above, the first trade at 4755 represents one contract valued at 4755 x 50 i.e. Rs. 2,37,750/-.
Open interest indicates the total gross outstanding open positions in the market for that particular series. For e.g. Open interest in the June series is 51 contracts.
The most useful measure of market activity is Open interest, which is also published by exchanges and used for technical analysis. Open interest indicates the liquidity of a market and is the total number of contracts, which are still outstanding in a futures market for a specified futures contract.
A futures contract is formed when a buyer and a seller take opposite positions in a transaction. This means that the buyer goes long and the seller goes short. Open interest is calculated by looking at either the total number of outstanding long or short positions – not both.
Open interest is therefore a measure of contracts that have not been matched and closed out. The number of open long contracts must equal exactly the number of open short contracts.
Action | Resulting open interest |
New buyer (long) and new seller (short) Trade to form a new contract. | Rise |
Existing buyer sells and existing seller buys –The old contract is closed. | Fall |
New buyer buys from existing buyer. The Existing buyer closes his position by selling to new buyer. | No change – there is no increase in long contracts being held |
Existing seller buys from new seller. The Existing seller closes his position by buying from new seller. | No change – there is no increase in short contracts being held |
Open interest is also used in conjunction with other technical analysis chart patterns and indicators to gauge market signals. The following chart may help with these signals.
Price | Open interest | Market |
Up | Up | Strong |
Up | Down | Warning signal |
Down | Weak | |
Down | Warning signal |
The warning sign indicates that the Open interest is not supporting the price direction.
