Open Interest

Open interest refers to the total number of outstanding futures or options contracts that have not been settled by an offsetting transaction. It reflects the total number of contracts that are held by market participants at any given time. In the context of cryptocurrencies, open interest is particularly relevant in derivative markets such as futures and options.

Example:

Let's say there are three traders in a cryptocurrency futures market:

Trader A buys 5 futures contracts.

Trader B sells 3 futures contracts.

Trader C buys 2 futures contracts.

The open interest in this scenario would be 8 contracts (5 bought by Trader A, 3 sold by Trader B, and 2 bought by Trader C).

Case:

If Trader A sells their 5 contracts to Trader D, who is not already holding any contracts, the open interest remains unchanged because the contracts have simply changed hands. However, if Trader D buys 5 contracts from Trader A, who is already holding 5 contracts, the open interest increases by 5 contracts because new positions have been created.