Analyse total active positioning in derivatives markets to assess trend conviction, liquidity conditions, and whether moves are driven by new money or position unwinding.
Open Interest represents the total number of outstanding derivative contracts.
It increases when new positions are created and decreases when positions are closed.
Each contract requires a buyer and a seller.
Rising Open Interest indicates new positions entering the market.
Falling Open Interest signals position unwinding and declining participation.
What It Measures
Open Interest represents the total number of outstanding derivative contracts.
It increases when new positions are created and decreases when positions are closed.
Each contract requires a buyer and a seller.
Rising Open Interest indicates new positions entering the market.
Falling Open Interest signals position unwinding and declining participation.
Institutional Use
Open Interest is analysed in conjunction with price and volume to determine whether moves are driven by new positioning, short covering, long liquidation, or passive flow.
Its real value lies in identifying whether trends are being built, sustained, or unwound.
Key Signals
Price rising with increasing Open Interest signals new long positions and strong bullish conviction.
Price rising with falling Open Interest signals short covering and a potentially weak or temporary move.
Price falling with increasing Open Interest signals new short positions and strong bearish conviction.
Price falling with falling Open Interest signals long liquidation and a potentially weak move.
Trading Playbook
Trend confirmation: enter when price movement is accompanied by rising Open Interest in the direction of the move.
Caution signal: sharp price move with falling Open Interest suggests weak conviction.
Exit when Open Interest begins falling significantly while price is still moving in trend direction.
When Not to Trade
Avoid trading Open Interest signals around expiry dates when mechanical unwinding distorts readings.
Do not use in isolation without price and volume context.