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Indicators

What Is Open Interest

Open interest is the number of contracts open right now in a futures market, each with one buyer and one seller behind it; it rises by one when a new buyer meets a new seller, falls by one when both sides close, and does not move when a contract changes hands. This paper shows you three trades and what each does to the count, the idea as a hotel at night, the guest book against the key board for volume against open interest, one contract with its two sides, and where the number is published and why a CFD chart does not carry it.

Difficulty
Advanced
Reading time
4 min
Pages
8
Reviewed by
Saman Rahbar

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Three trades, one count

Open interest is a count: how many contracts in one futures market are open right now, each with a buyer on one side and a seller on the other. Take a market with 1,000 open, round numbers for illustration, and three trades. A new buyer meets a new seller: a contract is created, and the count goes to 1,001. Someone who holds one sells it to a newcomer: the contract changes hands, and the count stays at 1,001. Someone who holds one sells it to someone closing a sale: the contract is cancelled, and the count goes back to 1,000. Only creating or closing moves it.

A hotel at night

Picture a hotel at night. Each lit window is a room with a guest in it, and each guest is an open contract. Someone checking in is a new contract, and the count of lit windows goes up by one; someone checking out is a contract closed, and it goes down by one. A guest who hands the key straight to a new guest at the desk changes nothing: the room is still taken, and the window stays lit. Open interest is the number of windows lit tonight.

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