How it unfolds, step by step
The setup
Start with no open derivative contracts. No contracts traded, and no contracts outstanding. Prices and charges do not change these counts. Count open contracts separately from trades.
What happens next
Three events follow. New buyers and new sellers open five contracts between them. Then two of those contracts change hands. Existing holders of the long side sell to new holders, while the short side stays exactly where it is. Last, three holders of the long side and three of the short side close out against each other.
What it means — and does not
Ten contracts have traded and two are still open. Volume added up at every event, because volume counts activity. Open interest rose by five, stayed flat through the transfer, then fell by three. It counts positions that exist. The middle event is the one that separates the two columns. A contract moved between holders, and nothing was created or destroyed. And the five contracts opened in the first event are five, not ten. The long and the short are the two sides of one contract, counted once. Whether any of this is bullish or bearish is a question for a different page. This one only shows what is being counted.
- Cumulative volume (contracts)
- Open interest (contracts)
Event 1 is the market before trading: nothing traded, nothing outstanding. Event 2 opens five contracts between new buyers and new sellers. Event 3 moves two of them to new holders. That adds to volume and leaves open interest untouched. Event 4 closes three matched pairs. Ten contracts traded. Two still open.
Show the underlying data
| Trading event | Cumulative volume (contracts) | Open interest (contracts) |
|---|---|---|
| 1 | 0 | 0 |
| 2 | 5 | 5 |
| 3 | 7 | 5 |
| 4 | 10 | 2 |
What this does not establish
The count itself does not fail. What fails is a reading built on two numbers that are not describing the same thing. There are three ordinary ways that happens. The first is . Positions can move to a later expiry. When they do, open interest in a near expiry is not one series with the same contract a week later. The near figure falls and the later one rises, while nothing has been opened or closed. The second is the starting value. A percentage change needs a starting value that is not zero. So a series that begins at zero has no meaningful growth rate. The third is units. A figure published in units cannot be compared with one published in contracts. First you have to know how many units are in one contract. Where any of those hold, the change on the screen comes from the comparison itself. It is not a change in outstanding positions.
Things to check
6Is this figure volume over a period, or open interest at a point in time?
Is it the same instrument on both sides of the comparison — same underlying, expiry, and for options the same strike and side?
Are the two numbers read from the same timestamp?
Is a percentage change being taken against a starting value that is not zero?
Are both figures in the same unit — contracts against contracts, or units against units?
Remember: the count describes how many contracts are outstanding, never who holds them or why.
Common mistakes
4Doubling the figure because every contract has two sides. Five open contracts are five, whichever side you look at. Counting both sides would double every open-interest number ever published.
Reading a busy session as a change in positioning. Opening and closing can cancel out almost exactly. That leaves heavy volume beside an open interest that barely moved.
Treating volume above open interest as an error. A contract opened and closed inside the same session adds twice to volume and leaves the level unchanged. So which of the two figures is larger tells you nothing at all.
Reading a fall in a near expiry as positions leaving, without looking at the expiry they may have moved to.
One newly opened long is matched against one newly opened short. By how much does open interest rise?
- By two — the long and the short are each a new position
- By one
- It depends on which side initiated the trade
Show the answer
B. By one
The tempting answer doubles the count. It is tempting because two people really did take on positions. But open interest counts CONTRACTS, and one contract is what those two people created between them. Every open contract has a long side and a short side by definition. So counting both sides would double every open-interest figure ever published. The third answer borrows something from volume reporting that open interest does not record at all. The count is even on both sides, and which side moved first makes no difference to it.
Frequently asked
3Can volume be larger than open interest?
Yes, and it happens all the time. Volume adds up every trade over the period. Open interest is a level at the end of it. So a contract opened and closed inside the same session adds twice to one and leaves the other where it started.
Does every trade increase open interest?
No. It rises only when both sides are opening new positions. When both sides are closing, it falls. When one holder hands a position to another, it does not move at all. That last event is the one most often missed.
Does a large open interest mean there are more buyers than sellers?
No, and it cannot. Every outstanding contract has one long and one short, so the two sides are always equal. The count says how many contracts are open. It never says which side is behind them.