Understanding Open Interest in Futures and Options Markets

Open interest shows whether money is flowing in or out of the derivatives market, and it is a reliable early indicator of Bitcoin’s mid-term trend.

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Explaining Open Interest

Open interest refers to the total number of derivative contracts (futures or options) that remain open at the end of the trading day. The number of outstanding futures or options contracts is not fixed and changes daily as some traders open new positions while others close theirs. In short, open interest shows the total number of futures or options that have not yet been settled.

□ Open interest measures the number of open contracts, not the sum of both buys and sells together

□ Open interest changes only when a new position is opened or an existing position is closed

What does open interest show? 

□ Shows general market sentiment across different asset classes (equities, crypto, etc.)

□ Indicates money flowing in or out of the futures and options market

□ Shows the level of market liquidity

□ Recognizes markets that are about to enter strong trends 

□ Confirms the strength of the ongoing price trend

□ Confirms potential tops/bottoms

Comparing Open Interest and Volume in the Futures Market

Open interest and futures market volume are related but measure different things. Open interest shows the total number of futures contracts that remain open, while volume shows the total number of contracts traded during the day.

👉 Example: If a new trader buys 5 contracts from an existing trader, open interest does not change because no new positions were added to the market. However, trading volume increases by 5 contracts.

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How to Use Open Interest to Analyze Trends

As mentioned earlier, open interest shows money flowing in or out of a market. Rising open interest means more traders are becoming active, which supports the strength of a trend. Falling open interest suggests the trend is losing momentum. Large shifts in open interest often signal that big players are entering or exiting, which can point to a possible change in price direction.

By tracking whether open interest is accelerating or slowing down, we can confirm whether a price trend is likely to continue or reverse.

👉 Example: Suppose a market has been booming for months with open interest rising steadily alongside prices. This is a healthy sign of trend continuation. But if prices start to weaken while open interest slows down, it may suggest a trend reversal is coming.

Open interest often peaks at the same time the underlying market peaks. For example, this was seen in Bitcoin during the 2020–2021 bull market.

Image: BTC/USD Market & Aggregated Open Interest of Bitcoin Futures

📌 Note: Total Bitcoin futures open interest is calculated as the sum of all open futures positions across the largest cryptocurrency exchanges. More on sources.

Looking at the charts above, we can see that the BTC/USD chart and the Aggregated Open Interest chart are almost identical. Open interest also tends to weaken faster at market tops than the Bitcoin price itself. This suggests that major changes in open interest can serve as an early indicator of upcoming shifts in key BTC/USD trends.

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Open Interest Analysis – Links

Open interest applies to both futures and options contracts, and related data is published daily:

(A) EQUITIES

• CME OPTIONS: https://www.cmegroup.com/markets/products.html#assetClass=4&cleared=Options&search=nasdaq&sortField=oi

(B) FOREIGN EXCHANGE

• CME OPTIONS: https://www.cmegroup.com/trading/fx/options.html

(C) METALS

• CME OPTIONS: https://www.cmegroup.com/markets/products.html#assetClass=sg-35&cleared=Options&sortField=oi

(D) CRYPTOCURRENCIES

• BYBIT (AGGREGATE FUTURES): https://www.bybt.com/BitcoinOpenInterest

 

SOURCES:

• CME: https://www.cmegroup.com/education/courses/introduction-to-futures/open-interest.html
• BITCOIN FUTURES: https://www.theblockcrypto.com/data/crypto-markets/futures/aggregated-open-interest-of-bitcoin-futures-daily

 

■ Open Interest and Bitcoin Markets

Giorgos Protonotarios, Financial Analyst

for TradingCenter.org (c)

31st of May, 2021