Open interest explained: what it is and how it differs from volume

Open interest appears next to price on almost every derivatives screen, and it is one of the most misread numbers in trading. It is not a measure of buying or selling pressure, and it is not volume. It is a count of open positions. Here is how it works.

The definition

Open interest is the total number of derivative contracts that are open, meaning not yet closed or settled, at a given moment. It applies to futures, perpetual futures and options.

Every open contract has two sides: a long and a short. Open interest counts contracts, not sides, so one long matched with one short is an open interest of one.

How each trade changes open interest

Whether open interest moves depends on whether each side of a trade is opening or closing a position.

Buyer	Seller	Effect on open interest
Opens a new long	Opens a new short	+1 (a new contract exists)
Opens a new long	Closes an existing long	0 (the position changes hands)
Closes an existing short	Opens a new short	0 (the position changes hands)
Closes an existing short	Closes an existing long	−1 (a contract disappears)

Worked example

1. Asha opens a long of 10 contracts; Ben opens a short of 10. Open interest: 10.
2. Chen opens a long of 5; Asha sells 5 to close half her long. Open interest stays at 10. Chen now holds what Asha held.
3. Ben buys 10 to close his short; Asha and Chen each sell 5 to close their longs. Open interest: 0.

Total volume across those trades: 10 + 5 + 10 = 25 contracts. Volume kept climbing while open interest went up and back down to zero.

Open interest vs volume

• Volume measures activity: how many contracts traded over a period.
• Open interest measures exposure: how many contracts remain open at a moment.

A day can have heavy volume and unchanged open interest, if traders are mostly swapping positions. A slow day can see open interest climb, if a few large participants open new positions.

How traders read it

Open interest is usually read with price, not alone. These are the combinations traders commonly look at. They describe what has happened to positioning, not what will happen next.

Price	Open interest	What it describes
Up	Up	New positions are being opened as price rises
Up	Down	Price rising while positions close, often shorts covering
Down	Up	New positions are being opened as price falls
Down	Down	Price falling while positions close, often longs exiting

Traders also compare open interest with funding rates. Rising open interest with strongly positive funding shows leveraged longs building up; with negative funding, leveraged shorts.

Things to watch out for

• Units. Open interest may be shown in contracts, in the underlying asset or in USD notional. Changes in USD terms can come from price moves alone.
• Venue coverage. One venue’s open interest is a slice of the market. Aggregated figures combine several venues and may differ in method.
• Sudden drops. A sharp fall in open interest during a fast move often reflects liquidations as well as voluntary closes. See leverage, margin and liquidation.

Summary

Open interest tells you how much exposure is open in a market right now. Volume tells you how much trading happened. Read together, and with price and funding, they describe how the market is positioned. They do not, on their own, tell you where it goes next.