What it means
Volume counts every trade during the day; open interest counts the positions still standing at the end of it. It rises when a new buyer meets a new seller and falls when both sides close. Rising open interest with a rising price suggests new money is backing the move; falling open interest suggests positions are being closed.
Example
If 500 contracts are opened today and 200 older ones are closed, open interest rises by 300.
In practice
Open interest shows whether money is entering or leaving a market. A trend supported by rising open interest has new positions behind it; a rally on falling open interest is more likely to be short sellers closing than fresh buying.
In options it is read strike by strike: the strikes with the largest open interest show where the biggest positions sit. In crypto futures, a sharp rise in open interest ahead of a move warns that leverage has built up.
What to watch for
Every contract has a buyer and a seller, so open interest never says which side is right. A build-up at one option strike can be either support or a target, depending on who holds it.
Related terms
5 terms- VolumeHow much of an asset traded during each candle.
- Option chainA table of every available option on one asset for one expiry, with calls on one side, puts on the other and strike prices down the middle.
- Put-call ratioPCROpen interest (or volume) in put options divided by that in call options, used as a rough gauge of market mood.
- Perpetual futuresCrypto futures with no expiry date, kept close to the spot price by regular funding payments.
- Futures contractA standardised agreement to buy or sell something at a set price on a future date, traded on an exchange.