Open interest
Open interest is the total number of outstanding futures or options contracts that have not yet been closed, exercised, delivered, or expired at the end of a trading day, representing the aggregate of all open long and short positions in the market.[1][2] This metric applies to derivative markets, where it equals the number of contracts held by market participants, with every long position matched by a corresponding short position.[2][3] Open interest is calculated by exchanges and clearing houses daily: it increases by one contract when a new buyer and new seller enter the market to open positions, remains unchanged when an existing long and existing short close their positions against each other, and decreases by one contract when an existing long and existing short both close without a new opening trade.[1][3] For options, open interest includes both calls and puts across various strikes and expirations, and in combined futures-options reports, option positions are converted to futures-equivalent positions using delta factors to assess overall exposure.[2] Gross open interest sums all positions across accounts, while net open interest nets longs and shorts per participant before aggregation, providing insights into total market depth versus clearing house risk.[3] In financial markets, open interest serves as a key indicator of liquidity, trader commitment, and trend strength: rising open interest alongside price movements suggests sustained directional interest and potential trend continuation, while declining open interest may signal weakening momentum or position unwinding.[1] It is distinct from trading volume, which measures daily transactions, as open interest reflects the standing backlog of contracts and helps traders assess market participation levels.[1] Regulatory bodies like the U.S. Commodity Futures Trading Commission (CFTC) publish weekly Commitments of Traders (COT) reports breaking down open interest by trader categories—such as commercials, non-commercials, and non-reportables—to reveal positioning and potential influences on prices.[2] High open interest in major products, including interest rate futures like SOFR and Treasuries, underscores its role in evaluating overall market activity and risk.[1][4]Fundamentals
Definition
Open interest refers to the total number of outstanding futures or options contracts held by market participants at the end of a trading day that have not yet been closed, exercised, or expired.[1] This metric provides a snapshot of the contracts actively in play within derivative markets, reflecting the level of ongoing commitment from buyers and sellers.[5] Each such contract represents an agreement between two parties—one taking a long position (betting on price increase) and the other a short position (betting on price decrease)—but open interest tallies each contract only once, irrespective of the position type.[1] Open interest is a key measure in derivatives trading, where futures and options serve as financial instruments deriving value from underlying assets like commodities, currencies, or indices.[6] Unlike trading volume, which counts the number of contracts exchanged during a session, open interest focuses solely on unsettled positions carried forward.[7] The concept emerged alongside the growth of organized futures exchanges in the 19th century, such as the Chicago Board of Trade, founded in 1848 and introducing standardized futures contracts in 1865.[8] Exchanges began systematically tracking open interest in the late 19th century through clearing processes, while regulatory oversight of large trader positions started in the early 20th century with the Grain Futures Administration's reporting system established in 1923, which required daily position reports to monitor market activity.[9][10] This laid the foundation for modern oversight, evolving into monthly Commitments of Traders reports by 1962.[10]Relation to Trading Volume
Trading volume represents the total number of futures or options contracts that are bought and sold during a specific period, such as a trading day, with each transaction counted once regardless of whether it initiates a new position or closes an existing one.[11] In contrast, open interest measures the total number of outstanding contracts that have not yet been settled, exercised, or closed at the end of the trading day, serving as a snapshot of the market's unsettled positions rather than the flow of activity.[12] While trading volume captures the daily influx of market activity, open interest reflects the cumulative stock of positions; a single trade can affect open interest by increasing it (if both parties are opening new positions), decreasing it (if both are closing existing positions), or leaving it unchanged (if one party is closing while the other is opening).[1] The following table illustrates common trade scenarios and their impacts on both metrics, assuming a single contract trade for simplicity:| Scenario | Description | Impact on Volume | Impact on Open Interest |
|---|---|---|---|
| New positions opened | A new buyer and a new seller enter the market, creating a fresh contract. | +1 | +1 |
| Positions closed | An existing long holder sells to an existing short holder, offsetting both positions. | +1 | -1 |
| Position transfer | An existing long holder sells to a new short holder (or vice versa), closing one position while opening another. | +1 | Unchanged |
Calculation
Daily Updates
Open interest begins at zero upon the inception of a derivatives contract and is subsequently tallied by clearinghouses, such as those operated by CME Group, at the conclusion of each trading session to reflect the net addition or reduction in outstanding positions.[1] This daily reconciliation ensures that open interest accurately represents the total number of unsettled contracts held by market participants.[5] The rules governing changes in open interest are straightforward: it increases by one unit for each new long-short pair established through opening trades, decreases by one unit for each offsetting trade that closes existing positions, and remains unchanged for position transfers between existing holders without closure or creation of new contracts.[5] For instance, if Trader A sells a contract to Trader B, who is opening a new position, open interest rises by one; conversely, if Trader B later sells back to Trader A to close the position, it falls by one.[1] To illustrate these mechanics, consider the net impact of daily trading activity on open interest, which differs from trading volume that simply counts all transactions executed that day. The following table summarizes common scenarios:| Scenario | Trades Executed | Volume Impact | Open Interest Impact |
|---|---|---|---|
| New positions opened (e.g., 100 contracts) | 100 opening trades | +100 | +100 |
| Positions closed (e.g., 50 contracts) | 50 closing trades | +50 | -50 |
| Position transfers (e.g., 20 contracts) | 20 transfer trades | +20 | 0 |
| Mixed day (100 opened, 50 closed) | 150 trades total | +150 | +50 |