Short answer: Open interest is the number of futures or options contracts in the market that have not yet been closed out, exercised, expired or settled. It shows how many positions are still open, not how much money has changed hands or which way prices will move. Read it alongside price, because on its own it does not show a direction.
Last reviewed: 9 November 2026
At a glance
| Situation | What it is called or means | Open interest effect |
|---|---|---|
| A fresh buyer and a fresh seller enter a new contract together | A new contract is created | Rises |
| An existing buyer and an existing seller both close out | The contract leaves the market | Falls |
| An existing holder hands the position to a new holder | No new contract is created | Stays the same |
| Price rises and open interest rises | Long build-up, a bullish sign of fresh longs | Rises |
| Price falls and open interest rises | Short build-up, a bearish sign of fresh shorts | Rises |
| Price rises and open interest falls | Short covering, where the rally may not last without fresh buying | Falls |
What does open interest actually count?
Every options or futures contract has two sides. The buyer is called the long, and the seller is called the short. A buyer who holds the contract is long, and a seller who has taken the other side is short.
Open interest counts one side of the contracts, not both added together. If 1,000 contracts are open, there are 1,000 longs and 1,000 shorts, and the open interest figure is 1,000. Adding both sides would double-count every contract.
How does open interest change from day to day?
Open interest is a carry-forward figure. It builds up or unwinds across sessions, and it is not reset each day. Trading volume, by contrast, counts the contracts traded in a single session and starts again the next day.
Three things can happen to it. It rises when a fresh buyer and a fresh seller open a new contract together, because a new contract now exists. It falls when an existing buyer and an existing seller both close their positions, which removes the contract from the market. It stays the same when one holder simply hands an existing position to a new holder, since no new contract has been created.
Hypothetical example, with invented figures: Suppose a contract series has 10,000 open contracts at the end of Monday. On Tuesday, 1,500 new contracts are created, 400 are closed out by existing buyers and sellers, and 300 change hands between holders. Tuesday’s closing open interest is 10,000 + 1,500 − 400 = 11,100. The 300 transfers do not change the figure at all.
How do you read open interest alongside price?
Open interest tells you how strong positioning is, but not whether the market is heading up or down. Its meaning depends on what price is doing at the same time. There are four basic combinations.
When prices rise and open interest rises, the pattern is called long build-up. It suggests fresh long positions are entering the market, which is a bullish sign. When prices fall and open interest rises, the pattern is called short build-up. It suggests fresh short positions are entering, which is a bearish sign.
When prices rise but open interest falls, the pattern is called short covering. Shorts are buying back their positions, which lifts prices, but no new buyers are adding positions, so the rally may not last without fresh buying. When prices fall and open interest also falls, the pattern is called long unwinding. Existing longs are exiting, which suggests confidence is weakening.
Why does open interest matter for liquidity?
Higher open interest generally means more liquidity. Liquidity is how easily you can enter or exit a trade without moving the price much. With more open contracts, there are usually more counterparties willing to trade at competitive prices.
Liquidity brings less slippage. Slippage is the gap between the price you expected and the price at which your order is actually filled. A thinly traded contract with low open interest can have wider gaps, so the same order may cost more to enter or exit.
The catch is that “generally” is doing real work in that sentence. A large open interest figure does not guarantee a tight price spread on every trade, and liquidity can change during the day. Check the figure for the specific contract you are looking at, not just the market as a whole.
What are the limits of reading open interest?
The biggest limit is that open interest carries no direction on its own. A rise in the figure tells you positions are being added, but not whether those positions are long or short. That is why it must be read alongside price, and even then the four patterns are descriptions of what has happened, not forecasts of what will happen.
The second limit is that open interest is a count, not a view of who holds the contracts. A rising total can reflect many small participants or a few large ones, and the figure alone does not reveal which. Contracts also leave the count when they expire or are settled, so the figure can drop for reasons unrelated to any change of opinion.
Frequently asked questions
Is open interest the same as trading volume?
No. Open interest is a carry-forward count of contracts that are still open, while trading volume counts the contracts traded in a single session and resets each day.
Does rising open interest mean prices will go up?
Not on its own. Open interest does not reveal a directional view, so it must be read alongside price, where rising prices with rising open interest is called long build-up.
Does open interest count both buyers and sellers?
It counts one side of each contract, because every contract has a long and a short. Adding both sides together would double-count each contract.
Does higher open interest make trading easier?
Generally, yes. Higher open interest means more liquidity, which can make it easier to enter and exit trades at competitive prices with less slippage.
Sources and last check
Facts in this article were checked against the sources below on 9 November 2026. Rules and figures can change; check the primary source before acting.
- upstox.com (broker education)
- kotakneo.com (broker education)
- groww.in (broker education)
- dhan.co (broker education)
- zerodha.com (broker education)
- 5paisa.com (broker education)
This article is general information, not investment advice. MyFinanceBandhu is not a SEBI-registered investment adviser.