Open Interest Analysis
What is Open Interest
Open Interest (OI) is the total size of all futures contracts currently open in the market. It represents the combined value of long and short positions that have not yet been closed (settled).
Since every futures contract requires both a long and a short position, if OI is $1 billion, it means there are $1 billion in longs + $1 billion in shorts = $2 billion in total open positions.
OI shows the amount of money at stake in the market. While volume shows "how actively trading is occurring," OI shows "how many bets have accumulated."
OI vs Volume
| Metric | Open Interest (OI) | Volume |
|---|---|---|
| Measures | Cumulative size of open positions | Total traded amount over a period |
| Nature | Cumulative stock | Period flow |
| Increase means | New positions are being opened | Trading activity is high |
| Decrease means | Positions are being closed | Trading activity is slowing |
These two indicators are complementary. High volume with increasing OI means new capital is flowing into the market. High volume with decreasing OI means existing positions are being liquidated.
How OI Changes
OI Increases
When new buyers (longs) and new sellers (shorts) each open new positions.
- New capital enters the market
- Traders are betting with conviction on direction
- Fuel for future price movement is accumulating
OI Decreases
When existing longs close their positions, or existing shorts close their positions.
- Capital exits the market
- Traders taking profits or cutting losses
- Liquidations (including forced liquidations) occurring
OI Unchanged
When existing longs pass positions to new longs, or existing shorts pass positions to new shorts.
- Only ownership changes while total size remains the same
- Normal trading activity
Interpreting OI with Price
OI alone cannot tell you market direction. It must be interpreted together with price.
| OI | Price | Interpretation |
|---|---|---|
| Increasing | Rising | New longs entering. Uptrend strengthening. Healthy bullish signal |
| Increasing | Falling | New shorts entering. Downtrend strengthening. Bearish sentiment |
| Decreasing | Rising | Short positions closing (short covering). Sustainability uncertain |
| Decreasing | Falling | Long positions closing (stop-losses/forced liquidations). Capitulation |
The Healthiest Rally
OI increasing + price rising is the healthiest bullish pattern. New capital is entering and pushing prices up, indicating high trend sustainability.
The Most Dangerous Situation
A rapid OI surge + price spike (or crash) is a precursor to massive liquidations. The more positions accumulated, the stronger the cascade liquidations when price reverses.
Significance of Extreme OI Values
OI at Historical Highs
When OI reaches historical highs, it means maximum bets have accumulated in the market.
- A large price move in either direction is likely imminent
- If funding rate is extreme, a squeeze in that direction is possible
- Prepare for increased volatility
OI Plunges
A sharp OI decline signals large-scale forced liquidations have occurred.
- Price surge with OI plunge: Short squeeze. Mass short liquidations
- Price crash with OI plunge: Long squeeze. Mass long liquidations
After an OI plunge, markets often stabilize temporarily because excessive leverage has been cleared.
OI Units
Contracts vs USD Value
OI can be expressed in two units:
- Number of contracts (coins): Positions equivalent to 30,000 BTC
- USD value (notional value): Positions equivalent to $3,000,000,000 (3 billion dollars)
USD value is more accurate. OI measured in coin terms changes automatically with price, creating variations unrelated to actual capital flows.
BitInsight provides OI in both USD value and coin quantity.
Using the BitInsight OI Panel
You can monitor Binance USDT perpetual futures open interest in real-time on BitInsight's derivatives panel.
Available Information
- Open Interest USD Value: Notional value of all positions
- Open Interest Quantity: Coin-denominated amount
- 8 Major Coins: BTC, ETH, SOL, XRP, DOGE, ADA, AVAX, LINK
Practical Application
Pattern 1: OI Surge + Funding Rate Spike
- Long positions are accumulating excessively
- High risk of cascade liquidations on price decline
- Avoid new long entries, manage existing position risk
Pattern 2: OI Surge + Negative Funding Rate
- Short positions are accumulating excessively
- Short squeeze possible on price rise
- Spot buying opportunity or consider long positions
Pattern 3: OI Decline + Price Consolidation
- Market participants exiting. Interest declining
- No clear direction. Low volatility period
- Energy accumulating for the next big move
Pattern 4: OI Plunge + Price Spike
- Large-scale liquidations occurred
- Temporary stability expected after squeeze completion
- Watch for new trend formation post-liquidation
Comparing OI Across Coins
Comparing OI across multiple coins on BitInsight reveals capital flow directions.
BTC OI Dominance
The share of BTC in total cryptocurrency derivatives OI.
- BTC OI dominance rising: Capital concentrating in BTC. Risk-off or BTC-led rally
- BTC OI dominance falling: Capital dispersing to altcoins. Alt season atmosphere
Altcoin OI Surges
A surge in a specific altcoin's OI indicates speculative interest concentrating on that coin. When OI to market cap ratio is high, volatility can become extreme.
Relationship Between OI and Liquidations
Higher OI means larger potential liquidation size.
Liquidation Cascade
- Price movement triggers some position liquidations
- Liquidation orders (forced buys/sells) move price further
- Additional positions get triggered for liquidation
- Chain reaction causes extreme price movement
Higher OI means more fuel for this chain reaction, making price movements more extreme once started.
Combining with Other Indicators
OI + Funding Rate + Long/Short Ratio
Viewing these three derivatives indicators together provides the most complete picture.
| OI | Funding Rate | Long/Short Ratio | Interpretation |
|---|---|---|---|
| High | Extremely positive | Long dominant | Long squeeze risk. Maximum warning |
| High | Extremely negative | Short dominant | Short squeeze possible. Expect bounce |
| Low | Neutral | Balanced | Market indifference. Searching for direction |
| Increasing | Rising | Longs increasing | Overheating in progress. Enhanced monitoring |
OI + Exchange Reserves
When exchange reserves increase while OI also increases, selling pressure is building on exchanges while positions accumulate in the futures market - a strong signal of volatility expansion.
Summary
Open Interest is an indicator showing the total size of bets accumulated in the futures market. OI alone cannot determine direction - it must be interpreted alongside price changes. OI increase + price rise indicates healthy bullishness, while OI surge + extreme funding rate is a squeeze warning. Monitoring OI alongside funding rate and long/short ratio on BitInsight allows effective assessment of whether the derivatives market is overheated or cooling down.
Next article: Reading Long/Short Ratio - Is the Crowd Always Wrong