Types of Derivatives-Cont’d Futures contracts-Cont’d Most future contracts are closed out by an offsetting position before the delivery occurs. Along offsets by going short and the short offsets by going long at anytime before the delivery date. The total number of outstanding contracts is called open interest. For every outstanding contract one person is short and one is long. If a particular transaction involves anew long and anew short, the open interest increases by one contract. If a transaction involves offsetting by an existing long and offsetting by an existing short, the open interest decreases by one contract. However, if a transaction is made by offsetting an existing short or long, and if the other side of transaction is anew investor, the open interest remains unchanged.
