Open Interest: What It Measures and What It Doesn’t

Open interest is the total number, or notional value, of derivative contracts that remain open at a point in time. Every contract has a long and a short side, so open interest counts positions, not participants on one side. It rises when new positions are created and falls when existing ones are closed.

What changes it

• New buyer and new seller: open interest increases.
• Existing long sells to an existing short who is closing: open interest decreases.
• Existing position transfers to a new participant: open interest is unchanged.

Common misreadings

A frequent error is to read rising open interest during a rally as “longs piling in.” Every new long is matched by a new short. What rising open interest does show is that more leverage is being deployed in the contract. Whether that leverage is more fragile on the long side or the short side requires other data, such as funding rates, basis, and liquidation patterns.

Used carefully, open interest is a valuable gauge of how much leveraged exposure exists — and therefore of how much could be forced to unwind in a stress event.

This publication is provided for informational purposes only and does not constitute investment, legal, or tax advice, or an offer or solicitation to buy or sell any asset. Live figures are computed from third-party public market data and may be delayed, incomplete, or inaccurate.