What Is Open Interest (OI)? Using It to Assess Market Reversals
Learn what Open Interest measures, how it differs from volume, and how traders combine OI, price and volume when assessing futures-market trends.
By Kru Kook (Krittiya Khunabrimas)
What Is Open Interest (OI)? Using It to Assess Market Reversals
In investing, especially in derivatives markets, understanding the available tools and data is important when making trading decisions. One data point traders may use is Open Interest (OI), or the number of outstanding futures contracts. This guide explains what OI means, how it differs from volume, how it may be used in market analysis and how the source suggests combining it with price and volume when assessing trends and possible reversals.
What Is Open Interest (OI)? Data Used to Assess Market Reversals
The Meaning of Open Interest
Open Interest (OI) is the number of futures contracts that have been opened and not yet closed in a derivatives market. OI is created when a new long position and a new short position are matched. The contract remains outstanding until it is closed. A large number of outstanding contracts may indicate investor interest and accumulated positions in an instrument.
OI and Volume: The Basic Difference
Open Interest and volume are related but different measures. OI is the accumulated number of positions that remain open from the time contracts begin trading. Volume is the amount of trading activity over a particular day or period; it is not carried forward as an outstanding position count from prior days. The source emphasizes understanding this distinction before using either measure in analysis.
How Does Open Interest Differ from Volume? An Example
A Hypothetical Daily OI and Volume Calculation
The source gives the following example to illustrate how it treats OI and volume:
Day 1
- 10:00: Trader A opens one long contract and Trader B opens one short contract; they are matched.
- Open Interest: Increases by one contract because a new position is opened and matched.
- Volume: The source counts two contracts: one buy and one sell.
- 11:00: Trader C opens one short contract and Trader B closes a long contract. The source says Trader B already had a short position and submits an opposite order to close the long.
- Open Interest: Remains at one contract because Trader B's position is closed while Trader C opens a replacement position, leaving the total unchanged.
- Volume: Increases by two contracts (one buy and one sell), bringing the source's daily total to four.
- 12:00: Trader D opens one long contract and Trader C opens one additional short contract.
- Open Interest: Increases by one, from one to two contracts, because the source says new positions are opened by both traders.
- Volume: Increases by two (one buy and one sell), bringing the source's daily total to six.
Day 2
- 10:00: Trader E opens 100 short contracts and Trader A closes 100 long contracts. The source adds that Trader A previously held one long and either opens 99 more to close 100 at once or already held 100 longs.
- Open Interest: The source says it rises by 100, from two to 102 contracts, because Trader E opens a large number of new positions while Trader A closes.
- Volume: The source counts 200 contracts (100 buys and 100 sells), giving a Day 2 total of 200 at that time.
Key Differences Between OI and Volume
The source summarizes the distinction this way:
- Open Interest (OI) is the accumulated count of futures contracts still open. It rises when new positions are opened and falls when positions are closed.
- Volume is trading activity during a period. It is not accumulated from earlier days and, in the source's convention, counts trades whether they open or close positions.
In this explanation, OI represents the number of contracts that remain in the market, while volume represents how active trading has been during a period. The source's numerical conventions and examples should be checked against the relevant exchange's definitions.
Benefits of Watching Open Interest in Market Analysis
What Can OI Say About a Market Trend?
The source says accumulated OI can provide insight into the direction and strength of a trend:
- High OI: A large number of positions may indicate substantial participation. The source suggests that large investors or institutions may be involved and that prices could move sharply in either direction once a trend becomes clear.
- Low OI: This may indicate reduced interest or that large investors are leaving the market, which the source associates with less forceful price movement or a weakening trend.
Position Accumulation and Market Influence
The source says a sustained increase in OI may indicate that large investors are accumulating positions. Studying changes in OI together with price and volume is presented as a way to assess market direction and drivers.
How Does the Source Use OI to Assess Reversals and Confirm Trends?
The article recommends considering OI together with price and volume rather than in isolation. It describes two broad cases.
Case 1: OI to Confirm a Continuing Trend
The source says rising OI together with price movement and volume can be used to assess the strength of an existing trend:
- Price rises + volume rises + OI rises: The source calls this a strong sign that an uptrend may continue, attributing it to new investors opening more long positions alongside active trading.
- Price falls + volume rises + OI rises: The source calls this a strong sign that a downtrend may continue, attributing it to new investors opening more short positions alongside active trading.
Case 2: OI to Assess a Possible Reversal or Pause
The source says falling OI may indicate position closures and may precede a pause or reversal:
- Price falls + volume falls + OI falls: The source interprets this as selling pressure weakening and traders gradually closing short positions, with a possible pause or upward reversal.
- Price falls + volume rises + OI falls: The source calls this a potentially important bottom signal. It interprets high volume with materially lower OI as large investors closing shorts rather than opening more shorts, reducing downward pressure.
- Price rises + volume falls + OI falls: The source interprets this as buying pressure weakening and traders gradually closing long positions, with a possible pause or downward reversal.
- Price rises + volume rises + OI falls: The source calls this a potentially important peak signal. It interprets high volume with materially lower OI as large investors closing longs rather than opening more shorts, reducing upward momentum.
Caution: OI Is Only One Supporting Input
Open Interest is a supporting part of market analysis, not a conclusive signal. The source recommends considering it alongside price patterns, support and resistance, indicators and fundamental information. It warns that relying only on OI can lead to misinterpretation.
How to View Open Interest on the SET Website
Steps to Access OI Data on SET.or.th
The source gives these navigation steps for accessing derivatives OI data on the Stock Exchange of Thailand website:
- Go to SET.or.th.
- Open the “Derivatives Market” or “TFEX” menu.
- Select “Trading Information” or “Statistics.”
- Look for “Series Trading Statistics” or “Daily Trading Information,” which the source says displays OI, volume and prices for each futures series.
The article says the data are updated daily so investors can follow changes in OI. Website menu names and data availability may change.
Case Study: Reading OI in Series H23 During a Market Bottom
The source presents a hypothetical or illustrative period of a sharp market decline. It says that if a futures series such as H23 keeps falling while OI begins to decline significantly, this could indicate that large investors who had opened many short positions are taking profit or reducing risk. The article interprets falling OI while prices continue to decline as a possible sign that selling pressure is fading and that an upward reversal may be approaching. It calls OI “raw data that cannot lie” when used to confirm such a signal; that characterization is the source's claim, not a guarantee of predictive value.
Conclusion
This article has covered the meaning of OI, how the source distinguishes it from volume, its proposed uses in trend analysis and its suggested reversal signals. The source recommends considering OI alongside price and volume. OI is one analytical input; it does not determine market direction on its own.
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Written and edited by: Krittiya Kunabramas (Kru Kook)
Full-Time Trader with 14+ years of experience · DW06 trading competition champion in 2019 · Guest speaker for leading financial institutions and brokers.