Technical Definition

Open Interest (OI)

Open Interest (OI) is the total number of active (unsettled) derivative contracts, such as futures or options, in the market.

By Crypto University Editorial
Funding RateLiquidationVolume

✦ Key Insight

Open interest helps traders understand how much active positioning exists in derivatives markets. It is often used alongside price, volume, funding rates, and liquidations to assess market participation and leverage. Rising open interest can suggest that new positions are entering the market. Falling open interest may indicate that traders are closing positions or being liquidated. Open interest does not tell traders whether positions are bullish or bearish by itself.

✕ Common Misconceptions

Treating high open interest as automatically bullish

Ignoring funding rates

Comparing exchanges without checking contract size

Confusing open interest with trading volume

Ignoring liquidation risk during rapid increases

Detailed Explanation

When a new long and a new short create a derivatives contract, open interest increases. When an existing position is closed against another existing position, open interest falls.

Traders commonly compare open interest with price:

  • Price rising + OI rising may indicate new participation

  • Price rising + OI falling may indicate short covering

  • Price falling + OI rising may indicate increased bearish positioning

  • Price falling + OI falling may indicate long liquidations or position closures

These interpretations are context-dependent.

FAQs

Is high open interest good or bad?
Neither by itself. It shows active derivatives exposure.

Can open interest fall while price rises?
Yes, especially when short positions are being closed.

Is open interest available for spot markets?
No. It mainly applies to derivatives.

In Practice

“Bitcoin rises 5% while futures open interest increases sharply. This may indicate new leveraged positions are entering rather than the move being driven only by traders closing shorts.”

Dig Deeper

Funding Rate

The funding rate is a periodic payment exchanged between long and short positions in perpetual futures markets, designed to keep the perpetual's price tethered to the underlying spot price. When longs pay shorts the rate is positive; when shorts pay longs it is negative.

Volume

Volume measures the total amount of an asset traded within a specific time period.