Open Interest (OI) represents the total number of active (open) futures contracts that have not yet been squared off (closed), expired, or exercised. It is a critical metric used by traders to analyze market participation, sentiment, and trend strength.
Think of OI as a real-time counter showing how many positions are currently active in the market. Unlike trading volume, which resets daily, open interest is cumulative—it updates with new contracts created or closed throughout the trading cycle.
How Open Interest Works
Open interest increases or decreases based on how contracts are opened or closed between traders.
Scenario
Effect on OI
Both buyer and seller open new positions
OI increases
Both buyer and seller close existing positions
OI decreases
One opens, one closes (transfer of position)
OI remains the same
Example: How OI Changes
Let’s say Nifty Futures lot size = 50
Trader A opens a long position, Trader B opens a short position → New contract formed → OI = +1
Trader C buys from Trader D who is closing → One entry, one exit → OI = No change
Trader A and B both close their trades → Both exit → OI = -1
OI tracks open contracts, not the number of trades.
Open Interest vs Volume
Feature
Open Interest
Volume
Definition
Number of contracts that remain open
Number of contracts traded during the day
Resets Daily?
No
Yes
Indicates
Market commitment & trend strength
Trading activity and momentum
Use Case
Analyzing trends & breakouts
Spotting short-term trading interest
Price + OI = Trend Insights
Open Interest becomes powerful when combined with price action:
Price Movement
OI Movement
Interpretation
Price ↑
OI ↑
New long positions = Bullish buildup
Price ↓
OI ↑
New short positions = Bearish buildup
Price ↑
OI ↓
Shorts exiting = Short covering
Price ↓
OI ↓
Longs exiting = Long unwinding
OI helps you read behind the candles—who’s entering, who’s exiting, and how strong the move is.
Real-Life Use Case: Nifty Futures
OI rises for Nifty Futures from 1.2 million → 1.5 million
At the same time, price moves from 22,000 → 22,300
→ Suggests fresh long positions are being built → bullish confirmation
On the other hand:
OI falls from 1.5 million → 1.2 million
While price stays flat or drops
→ May signal profit booking or reversal ahead
Why Open Interest Matters
Shows how engaged traders are
Confirms whether a price move is backed by participation
Helps differentiate false breakouts from strong ones
Indicates potential trend reversals
Assists in setting up intraday & swing trading strategies
Pro Tip: Always Combine OI With Price & Volume
OI alone doesn’t tell the full story
Use it with volume spikes, candlestick patterns, and support/resistance zones
Helps validate breakouts, reversals, and continuations
Key Takeaways
Open Interest = total number of open, active contracts in the futures market
Increases when new trades are opened, decreases when trades are closed
Best interpreted alongside price movement
Rising OI = confirms trend strength
Falling OI = warns of possible reversals
It’s one of the most important market internals for futures traders