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Academy Blockchain Concept Article

Open interest

2021.07.03 OKX

The number or value of unsettled — or open — positions in a derivatives market 

Open interest, or OI, is a metric in derivatives markets that indicates the number or value of unsettled — or open — positions at any given time. When a futures or options position is created, a buyer and seller enter into a contract to buy or sell the underlying asset at the agreed price on the date specified or before. The opening of a derivatives contract adds to the total open interest figure in a market and its closing reduces open interest. The open interest figure is the total weight of all these open positions. 

Open interest is related to volume, but the two metrics should not be confused. Whereas volume represents all transactions — both the opening and closing of positions — open interest only refers to those contracts that are yet to be closed. 

Open interest is a valuable metric for traders because it gives information about a market’s liquidity and can suggest future price trends. For example, it should be easier to get orders filled in a market with relatively high open interest. 

Traders often interpret growing open interest during an upward trend as an indication that the price will continue increasing. Conversely, decreasing open interest during a period of rising prices may be an indication of an imminent reversal. 

When prices are trending down, traders typically consider open interest in the same way. Increasing open interest may suggest a trend continuation, and open interest dropping often means downward momentum is nearly exhausted and prices could reverse.

Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.