Open interest
How many contracts are still open in a market, and what does that tell you that trading volume cannot?
In plain words
Open interest counts the contracts that currently exist in a derivatives market: each new long matched with a new short adds one, and a contract that is closed removes one. Trading volume instead counts contracts that changed hands during a period, however many times.
Why it matters
Open interest shows whether new money is entering or leaving a market. Rising open interest alongside a rising price suggests fresh longs; falling open interest during a rise suggests positions are being closed. Volume alone cannot separate new positions from old ones being passed around.
In a real week: BTC, week of 5 April 2021
For the week of 5 April 2021 to 11 April 2021, BTC returned 3.09%, with dollar volume of 21.96 billion, labelled below its prior 12-week average, while perpetual funding averaged 0.0599% per eight hours. Open interest is not in this data, so the number of new contracts entering or leaving cannot be counted here.
A common mistake
Reading volume as open interest. A week can show heavy volume with falling open interest, meaning positions were closing rather than building.