Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
Is there a finite number of contracts per a futures instrument ?
I have a feeling that this question will expose how little I really understand about this market but it has been bugging my mind for a while so I will ask:
Is there a finite number of contracts per a futures instrument (es, 6e etc...) and those contracts just switch hands ? OR is it that somehow new contracts are born into the circulation or withdrawn from it?
Can you help answer these questions from other members on NexusFi?
A futures transaction requires a buyer and a seller. Typically
- a buy market order is crossed with a sell limit order from the order book
- or a sell market order is crossed with a buy limit order from the order book
Now let us assume that A buys 1 contract and B sells 1 contract, then there are four different cases possible
(1) A enters a new long position and B enters a new short position
(2) A covers an existing short position and B enters a new short position
(3) A enters a new long position and B covers an existing long position
(4) A covers an existing short position and B covers an existing long position
Cases (2) and (3): An existing position is transferred. Open interest remains unchanged.
Case (1): Both parties enter a new position. Open interest increases by 1.
Case (4): Both parties cover an existing position. Open interest decreases by 1.
Case(1) is, when new contracts are created, case(4) is, when old contracts are closed. Open interest is published by the exchange at the end of each day, but is not available intra-day.
Literature
Introduction : Richard Teweles, Fank Jones - "The Futures Game: Who Wins, Who Loses, & Why"
Advanced: Jack D. Schwager - "Schwager On Futures: Technical Analysis"
Advanced: Jack D. Schwager - "Schwager On Futures: Fundamental Analysis"
Market MicroStructure: Barry Johnson - "Algorithmic Trading and DMA"
Academic: John C. Hull - "Options, Futures and Other Derivatives"
You cannot tell how many people have open position, because many of them are holding more than 1 contract.
If you only consider the traders holding 1 lot, then there are twice as many open positions as open contracts. For every long position there must be exactly one short position.
The simple answer is no, there are infinite number of contracts available to be traded for the futures. Although that doesn't mean that there are an infinite number of contracts available at each given price. It's totally dependent on the limit orders that are resting at/above/below the current bid/offer.
The number of contracts available at each price are simply dependent upon how many people are willing to "offer" or "Bid" the market at any given price.
As someone "hits" into a bid or offer, the number of contracts available are determined by how many people are willing to offer/bid limit orders at that given price.
Price goes up because there are more people wiling to hit into a current OFFER than there are people willing to offer/sell to those people that are actively "hitting" into the offer with market orders. Although at all times, there are an equal number of buyers to sellers........ if all that makes any sense?!?!?!
For a infinite number of contracts you would need an infinite amount of money to make up for the margin. Ben Bernanke and the Fed are doing their very best to make this possible.
The infinite amount of money printed can then be used to purchase more contracts. I would favour long positions of CL because in case of a price decline you will be able to take delivery.
You can then use the product to lubricate the printing press and produce more money to increase your position size....
I don't think that's necessarily true. In theory, several groups of people could transact at two prices forever. As long as there is a buyer and a seller willing to participate at a given price level, it could happen.
We've all seen price move on 10 lots, or 10,000 lots. In theory, instead of 10K needed to move a price, it could just as well be 10,000,000, or even 100,000,000. It could go on forever hypothetically. How many get traded is simply a matter of how many buyers and sellers are willing to transact at a given price.
It sounded like the OP was asking if a finite amount of contracts exist, and no more can be traded than that? And the answer to that is NO. As long as there is a buyer and a seller, they can trade. To me it seems looking at it that way, there is no limit to what CAN be traded, just need a buyer and a seller.
