Open interest (OI) is the total number of derivative contracts currently open — not volume (which counts trades), but the size of the outstanding bet. OI rises when new positions open and falls when positions close. Read alongside price, it tells you whether a move is fresh conviction or just unwinding.
Price + OI, four cases
- Price ↑ and OI ↑ — new longs entering: a trend with fresh money behind it.
- Price ↑ and OI ↓ — short covering: a bounce driven by exits, often less durable.
- Price ↓ and OI ↑ — new shorts entering: a downtrend with conviction.
- Price ↓ and OI ↓ — long liquidation/closing: a flush as positions unwind.
Why it matters
A rally on rising OI is built on new commitment; a rally on falling OI is built on shorts buying back — the latter can vanish once covering is done. Rising OI into a level can also mean a lot of leverage is stacking up there, which raises the odds of a sharp liquidation move if that level breaks.
OI with funding
OI and funding are best read together. Rising OI plus rapidly rising funding is the classic over-leveraged-long setup — lots of new longs, all paying to be there. That is fragile: a small dip can trigger liquidations that feed on themselves (the next lesson).