What is Open Interest ?

Open Interest also know as OI, is the total number of options and futures contracts that are not closed on a particular day. As you might be aware of volume in a particular stock in equity market, option trading involves the creation of a new option contract when a trade is placed. Open interest will tell you the total number of option contracts that are currently open.

Open Interest is mostly used to confirm a trend for a particular futures contract, For eg, lets look at Reliance 1000 May CALL, the open interest might tell us that there have been 5 options open in the month of May, a trader might then wonder does this refer to the number of contracts bought or sold.

Working
When a trader buy’s or sell’s an option, the transaction needs to be entered as either an opening or a closing transaction. If he buy’s 5 RELIANCE May 1000 CALL, he is buying the calls to ‘open’, i.e he is opening his position in a futures contract, which causes the Open interest to rise by 5, and then after sometime(within) the month he decides to sell his contract i.e close his position in a particular contract, then he is causing the open interest to go down by 5.

Open interest applies primarily to the futures market, it helps the measure the flow of money into the futures Market. For each seller of a futures contract (eg RELIANCE 1000 CALL) there must be a buyer of that contract. Thus a seller and a buyer combine to create only one contract.

A rise in open interest in a futures contract along with its price indicates bullishness, which means investors are creating long positions and vice versa.

The open interest position that is reported each day represents the increase or decrease in the number of contracts for that day, and it is shown as a positive or negative number.

Advantages of monitoring Open Interest
Changes in the Open Interst as mentioned earlier can help a trader interpret the future trend of a particular contract.

Open Interest RISING -> Indicates that the present trend (up, down, flat) will continue

Open Interest FALLING-> Indicates that the prest trend(up, down, flat) is likely to change or is coming to and end

Contract Price	Open Interest (%)	Future Trend(predicts)
Rising	Rising	The Contract is likely to trade strong in the coming days
Rising	Falling	The Contract is likely to see some downside in the coming days
Falling	Rising	The Contract should not be entered as of now
Falling	Falling	The Contract can be entered, as its likely to go up

What is Day Trading ?

• The term “day trading” is a widely misused and misunderstood term. Real day trading means not holding on to your stock positions beyond the current trading day; in other words, not holding any position overnight. This is really the safest way to do day trading because you are not exposed to the potential losses that can occur when the stock market is closed due to news that can affect the prices of your stocks.
• Unfortunately, many people who claim to be “day trading,” hold stocks overnight because of fear or greed, thus setting themselves up for the catastrophic elimination of their capital. When day trading currencies, the term “day trading” changes slightly. Since currencies can be traded 24-hours-a-day, there is no such thing as “overnight” trading. Thus, you can have open positions for longer than a day with active stop losses that can be activated at any time.
• Day trading can be further subdivided into 2 styles, including:
• 1.Scalpers: This style of day trading involves the rapid and repeated buying and selling of a large volume of stocks within seconds or minutes. The objective is to earn a small per share profit on each transaction while minimizing the risk.
• 2.Momentum Traders: This style of day trading involves identifying and trading stocks that are in a moving pattern during the day, in an attempt to buy such stocks at bottoms and sell at tops.

What is Swing Trading ?

• Swing Trading takes advantage of brief price swings in strongly trending stocks to ride the momentum in the direction of the trend.
• Swing trading combines the best of two worlds — the slower pace of investing and the increased potential gains of day trading.
• Swing traders hold stocks for days or weeks playing the general upward or downward trends.
• Swing Trading is not high-speed day trading. Some people call it momentum investing, because you only hold positions that are making major moves.
• By rolling your money over rapidly through short term gains you can quickly build up your equity.
• Q.How does Swing Trading work?
• A.The basic strategy of Swing Trading is to jump into a strongly trending stock after its period of consolidation or correction is complete.
• Strongly trending stocks often make a quick move after completing its correction which one can profit from.
• One then sells the stock after 2 to 7 days for a 5-25% move. This process can be repeated over and over again. One can also play the short side by shorting stocks that fall through support levels.
• In brief a Swing Trader’s goal is to make money by capturing the quick moves that stocks make in their life span, and at the same time controlling their risk by proper money management techniques.

What is Trend Trading ?

• Trend trading is one of the most effective and easy to use methods for making money in the market. Trend trading success depends on identifying and catching the trend after it has started and getting out of the trend as soon as possible after the trend reverses.
• Trend Trading involves taking a position in the markets with a view of holding that position for weeks to months for larger than normal gains. Trend traders or investors generally trade the long term or secular trends and are not concerned with the day to day market volatility.

Please check before you invest

New to the world of investing in stocks, don’t know the basics of the Stock Market ?? If yes,then we are sure this guide will surely help you to be successful investor in Stock Market.

Following are some of the posts that will surely help you:

It is imperative for the investors to follow the Dos and Don’t in general while dealing in the stock market. As there are attendant risks associated with it.

Given below are the Dos and Don’ts in general for investors who are dealing in Stock markets.

Do's

• Always deal with the market intermediaries registered with SEBI / Exchanges.
• Give clear and unambiguous instructions to your broker / agent / depository participant.
• Always insist on contract notes from your Broker. In case of doubt of the transactions, verify the genuineness of the same on the Exchange website.
• Always settle the dues through the normal banking channels with the market intermediaries.
• Before placing an order with the market intermediaries please check about the credentials of the companies, its management, its fundamentals and recent announcements made by them and various other disclosures made under various Regulations. The sources of information are the websites of Exchanges and companies, databases of data vendor, business magazines etc.
• Adopt trading / investment strategies commensurate with your Risk bearing capacity as all investments carry risk, the degree of which varies according to the investment strategy adopted.
• Please carry out due-diligence before registering as client with any Intermediary. Further, the investors are requested to carefully read and understand the contents stated in the Risk Disclosure Document, which forms part of investor registration requirement for dealing through brokers in Stock Market.
• Be cautious about stocks, which show a sudden spurt in price or trading activity, especially low price stocks.
• Please be informed that there are no guaranteed returns on investment in stock markets.

Don’ts

• Don’t deal with unregistered brokers / sub-brokers, intermediaries.
• Don’t deal based on rumours .
• Don’t fall prey to promises of guaranteed returns.
• Don’t get misled by companies showing approvals / registrations from Government agencies as the approvals could be for certain other purposes and not for the securities you are buying.
• Don’t leave the custody of your Demat Transaction slip book in the hands of any Intermediary.
• Don’t get carried away with onslaught of advertisements about the financial performance of Companies in print and electronic media.
• Don’t blindly follow media reports on corporate developments, as they could be misleading.
• Don’t blindly imitate investment decisions of others who may have profited from their investment decisions.