What Is Open Interest in Futures?
What is open interest? It is the number of futures contracts that are open: entered into and not yet offset by another trade, by delivery or by exercise (CFTC explanatory notes). Every contract has one long and one short behind it, so open interest measures how much commitment is standing in the market.
Where net positioning tells you which way one group leans, open interest tells you how big the whole market is. Each currency’s page, such as the British pound COT report, prints the leveraged funds’ net position as a share of it every week; every currency is on COT report for forex.
How contracts open and close
Open interest only changes when positions are created or closed:
- A new buyer trades with a new seller: a contract opens and open interest rises by one.
- An existing long sells to an existing short who is covering: a contract closes and open interest falls by one.
- A new buyer takes over an existing long’s position: the contract changes hands. That is volume, with no change in open interest.
That makes open interest a clean read on flows. Price can rise because new money is buying, or because old shorts are giving up and buying back. The chart looks the same; open interest tells them apart.
Two rallies that look the same
Picture euro futures rising 3% over a month in two ways. The numbers are invented to show the idea.
- Open interest climbs from 600,000 to 700,000 contracts while leveraged funds add to their net long. New money is committing to the move: a trend with fuel left.
- The same rally comes with open interest falling from 600,000 to 520,000. The move is mostly shorts buying back. Short-covering rallies can be sharp, but they end when the covering ends, because no new buyers came in.
Open interest in the COT report
Open interest scales a group’s position. A net long of 100,000 contracts means something different in a market with 300,000 contracts open than in one with a million. Read as a share of open interest, a position compares across years and across markets.
How the share of open interest helps judge a crowded trade is in COT Data Reversals.
Common mistakes
- Reading it without price. Rising open interest is neither bullish nor bearish: every new contract adds a long and a short. It means something next to the direction of price and each group’s position.
- Confusing it with volume. Volume counts contracts traded; open interest counts contracts still open. A heavy day that leaves open interest flat was repositioning, not new commitment.