What Is Open Interest?
Open interest (OI) is the total number of outstanding derivative contracts (futures or options) that remain open and unsettled. Each contract has a buyer and seller, so OI represents pairs of open positions. It measures the total capital and leverage committed to a market at any point in time.
How Open Interest Works
OI increases when a new buyer and new seller create a contract (new position). It decreases when an existing buyer and seller close their positions. If one new trader enters and one existing trader exits, OI stays the same. Volume measures activity; OI measures commitment.
Key OI + Price combinations:
- Rising OI + Rising Price — New longs entering (bullish confirmation)
- Rising OI + Falling Price — New shorts entering (bearish confirmation)
- Falling OI + Rising Price — Shorts closing (weak rally, potential reversal)
- Falling OI + Falling Price — Longs closing (capitulation, potential bottom)
Why It Matters for Traders
OI is essential context for price moves. A rally with rising OI is backed by new capital entering; a rally with falling OI is just short covering and likely to fade. OI spikes at key levels reveal where leveraged positions are concentrated, predicting where liquidation cascades may occur.