Open Interest (OI)

Open Interest (OI) is the total number of outstanding derivative contracts, such as options or futures, that have not been settled for an asset. It is a measure of the total capital currently "at risk" in the market.

Calculation

OI is calculated by adding all the contracts from open positions and subtracting the contracts when a position is closed. It is important to note that OI does not account for the total volume of trades, but rather the total number of active positions.

OI and Price Trend

Traders use OI to confirm the strength of a price trend. Increasing OI alongside a rising price indicates that new money is flowing into the market, suggesting a strong bullish trend. Conversely, if the price is rising but OI is falling, it indicates that the move is driven by short covering rather than new buying, which is a sign of a weakening trend.

Liquidity and Volatility

High OI generally means high liquidity, making it easier for traders to enter and exit positions. However, extremely high OI can also indicate an over-leveraged market, which is susceptible to violent "liquidation cascades" if the price moves against the dominant positioning.