Open Position at Close
An open position is a futures contract that has been opened and not yet closed out by an offsetting trade. The exchange-wide total of open positions on one side is called open interest. Any open position held into the last trading day must be settled per the contract specifications, either by physical delivery of the underlying or by cash settlement against a reference price. Open interest is a key liquidity and sentiment indicator, distinct from daily trading volume.
Why it matters
Every futures trade creates one long position and one short position, so total open interest counts the number of contracts outstanding, not the number of trades. Volume measures activity within a day, while open interest measures the stock of positions still alive. When a trader closes out, both the long and short legs reduce open interest by one. When two new traders open opposite sides of a fresh trade, open interest increases by one. Holding through to the last trading day commits the trader to whichever final settlement method the contract uses.
Formulas
Worked examples
A trader holds 2 long ASX SPI 200 futures into the final settlement date. The SPI 200 contract is cash-settled against the special opening quotation of the underlying index on the third Thursday of the expiry month.
ASX calculates the special opening quotation from the opening prices of the index constituents. The contract is then marked to that final settlement value. Any resulting gain or loss is settled through the margin account in the usual way. No physical shares change hands. Initial margin is released after settlement clears.
A trader holds 3 short July CME WTI crude oil futures at the close of the last trading day. The contract is deliverable in Cushing, Oklahoma.
Because WTI is a physical-delivery contract, the short must arrange delivery of 3,000 barrels of light sweet crude at the Cushing pipeline hub during the delivery month. Most professional traders avoid this by closing out before the last trading day. Open interest in WTI typically collapses by 90 per cent or more in the final week before expiry as positions roll forward or close.
Common mistakes
- ✗Holding to expiry is the normal exit route. The CME and ASX both report that under five per cent of open positions reach delivery. Open interest collapses in the final week before expiry as positions roll to the next month.
- ✗Open interest and volume are the same statistic. They measure different things. Volume counts contracts traded during a session. Open interest counts contracts outstanding at the end of the session. A high-volume day can leave open interest unchanged if traders are merely rolling existing positions.
- ✗Cash settlement and physical delivery are interchangeable. The choice is fixed in the contract specifications and cannot be changed by the parties. ASX SPI 200, S&P 500 E-mini, and most equity index futures are cash-settled. WTI crude, gold, wheat, and most commodity contracts are physically deliverable.
Revision bullets
- •Open interest counts all contracts still outstanding
- •Distinct from trading volume in the same session
- •Open positions at expiry must be delivered or cash settled
- •Settlement method fixed in contract specifications
- •Most positions are closed out before the last trading day
Quick check
A cash-settled futures contract at expiry requires the holder to:
Which statement about open interest is correct?
Connected topics
Sources
- Hull, John C. Options, Futures, and Other Derivatives. 11th ed. Pearson, 2022. ISBN 978-0-13-693997-9.Defines open interest, distinguishes it from trading volume, and explains delivery and cash-settlement procedures.
- Australian Securities Exchange. ASX SPI 200 Index Futures Contract Specifications and Final Settlement. ASX, 2024.Defines the special opening quotation used as the final settlement price for SPI 200 futures.
- U.S. Commodity Futures Trading Commission. Commitments of Traders Report. CFTC, weekly publication.Authoritative weekly publication tracking open interest by trader category in US futures markets.
- CME Group. Open Interest and Volume in Futures Markets. CME Group Education, 2024.Plain-English explainer of the distinction between open interest and trading volume and how they evolve through the contract life cycle.