Intermediate Guide
When trading futures or options, you will often hear the term open interest. Many traders look at it to understand how active a market is and how many positions are still open.
Key Takeaways
Open interest (OI) is the total number of futures or options contracts that are still open.It shows how many positions are currently active in the market.Rising open interest usually means new money is entering the market.Falling open interest often means traders are closing positions and money is leaving.Open interest does not predict price direction on its own.It is different from trading volume, which measures how much trading happened during a time period.
Introduction
If you trade futures or options, open interest is an important concept to understand. It tells you how many contracts are still active and unsettled in the market.
By looking at open interest, traders can get an idea of:
How popular a contract isHow liquid the market isWhether traders are entering or leaving the market
While open interest does not tell you where prices will go, it gives useful context about market activity.
What Does Open Interest Mean?
Open interest is the total number of futures or options contracts that have not been closed, settled, or expired.
In simple terms, it shows how many trades are still “open” and running.
Simple Example
Trader A buys 1 futures contractTrader B sells 1 futures contract
This creates one new contract, so open interest increases by 1.
Now:
If Trader A later sells to close the position, and Trader B buys to close theirs,→ Open interest decreases because the contract is closed.If Trader A sells to a new trader who opens a position,→ Open interest stays the same because one position is replaced by another.
How Does Open Interest Change?
Open interest changes every day based on trader activity.
Open interest increases when:
New buyers and sellers open fresh positionsMore contracts are created than closed
This usually means:
New traders are entering the marketExisting traders are adding more positions
Open interest decreases when:
Traders close their positionsContracts are settled or expire
This often suggests:
Traders are leaving the marketRisk exposure is being reduced
Open interest stays the same when:
One trader closes a position and another opens onePositions are simply transferred between traders
Open Interest vs Trading Volume
Many beginners confuse open interest with trading volume, but they measure different things.
Trading Volume
Counts how many contracts are traded during a time periodShows how active or busy the market it
Open Interest
Counts how many contracts remain openShows how many positions are still active
Example:
If 10 contracts are bought and sold in one hour:
Trading volume increases by 10Open interest may stay the same if no new positions were created
Why Is Open Interest Important?
Open interest is useful because it helps traders understand market conditions.
1. Market Liquidity
High open interest usually means better liquidityEasier to enter and exit trades without large price changes
2. Market Participation
Rising open interest suggests more traders are joiningFalling open interest suggests traders are exiting
3. Market Sentiment (with Price)
Open interest becomes more useful when combined with price movement:
Price up + Open interest up→ Trend may be supported by new moneyPrice down + Open interest up→ Selling pressure may be increasingPrice up + Open interest down→ Traders may be closing positions
Remember, these are signals, not guarantees.
Important Things to Remember
Open interest does not tell you whether price will go up or downIt works best when combined with:Price actionVolumeTechnical indicatorsIt is mainly used in futures and options, not spot trading
Closing Thoughts
Open interest is a key metric in futures and options trading. It shows how many contracts are still active and how much attention a market is getting.
While it doesn’t predict price direction by itself, changes in open interest can tell you whether traders are entering or leaving the market. When combined with other tools, it can help you better understand market behavior and make more informed trading decisions.
Understanding open interest helps you see what’s happening behind the scenes, not just the price on the chart.
#Openinterest #educational_post #BinanceSquareFamily