Open interest is the total number — or total notional value — of derivative contracts currently open. Every perpetual position that hasn’t been closed counts. It measures how much money is committed to the market right now.
Open interest versus volume
Volume counts trades. Open interest counts positions. A trader opening a long and closing it an hour later generates volume twice and changes open interest by nothing.
Rising open interest means new positions are being opened — new money entering. Falling open interest means positions are closing — money leaving. Volume tells you how active the market is; open interest tells you how committed it is.
Reading it with price
Price up, OI up: new longs entering, trend supported by fresh capital. Price up, OI down: shorts covering, a rally that may lack conviction. Price down, OI up: new shorts, or longs adding into a loss. Price down, OI down: longs liquidating or exiting.
These are tendencies, not rules. But a move on falling OI is more likely to reverse than one on rising OI.
Why it matters for liquidations
High open interest with a crowded directional lean is fuel. When price moves against the crowd, liquidations force closing trades in the direction of the move, which triggers more liquidations. The cascades that define crypto markets need high OI to happen.
In systematic trading
Open interest and its rate of change are features. Combined with funding rate and liquidation data they describe positioning, which predicts short-horizon behaviour better than price alone.