Capital Market Chronicles – Episode 175: FUTURES – OPEN INTEREST 📊🔍
If the futures market were a game of musical chairs 🎶, open interest would tell you how many people are still playing — not how many just walked in or out. It’s one of the most powerful indicators in futures trading but is often mistaken for “volume.” 😅
Both are crucial for understanding market activity — but they play very different roles. Open interest shows how many contracts are still alive and kicking 🧬, while volume measures how many changed hands today. In simple terms:
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📌 Open Interest = Ongoing contracts still in play.
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📈 Volume = Trading activity today.
Let’s break it down without the jargon. 🚀
🆚 Open Interest vs. Volume – Spot the Difference
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Open Interest: Total number of contracts that are still open and unsettled. Think of it as “unfinished business.”
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Volume: Number of contracts traded in a specific period (usually a day). Think of it as “today’s buzz.”
📊 Example – Mr. Raju’s Adventures in Nifty Futures:
Monday:
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Mr. Raju buys 100 Nifty futures contracts.
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✅ Open Interest = 100 (because these contracts are now active).
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📊 Volume = 100 (because that’s how many were traded today).
Tuesday:
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Mr. Raju buys another 100 contracts.
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✅ Open Interest = 200 (100 old + 100 new).
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📊 Volume = 100 (today’s activity).
👉 Moral of the story: Open interest is cumulative, while volume resets every day.
📌 Key Things to Remember
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Open interest shows how many contracts are still “on the table.”
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Volume shows how much trading happened today.
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Every buy order has a matching sell order (contracts are always formed in pairs).
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If a trader closes (or “squares off”) a position → OI decreases.
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If a contract is sold to a new buyer → OI stays the same.
🧮 Calculating Open Interest
Open interest is simply the total of all active contracts. It updates daily to reflect the market’s pulse.
Formula:
👉 Open Interest = Previous OI + New Contracts − Closed Contracts
📊 Example:
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Monday’s OI: 100
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Tuesday: 50 new contracts created, 20 closed
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Tuesday’s OI: 100 + 50 − 20 = 130
Most trading platforms update this automatically — but understanding how it’s calculated helps you interpret it better.
⚠️ Common Misconceptions about Open Interest
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❌ “Open Interest = Volume”
Nope. Volume is daily activity; OI is total active positions. -
❌ “Rising OI = Bullish”
Not always. OI can rise in a bearish market too — it just means more participants are joining. -
❌ “High Volume = High OI”
OI can remain constant even if volume is huge — if new contracts created = contracts closed. -
❌ “OI Predicts Price Direction”
Rising OI doesn’t guarantee rising prices. Always read it alongside price and volume. -
❌ “OI Exists in a Vacuum”
External factors like news 📰, earnings, and macroeconomic data 💹 also influence OI trends.
🧠 Summary
Open interest is more than just a number — it’s the heartbeat of the futures market ❤️🔥. It tells you how many players are still in the arena and how committed they are. When combined with volume and price, OI becomes a powerful lens to gauge:
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Market strength 💪
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Sentiment 📉📈
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Potential reversals 🔄
Understanding open interest gives traders a sharper edge 🔪 — helping them manage risk, anticipate moves, and make smarter decisions in the fast-paced world of futures trading. 🧠📊
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