Open Interest(OI) Thread: What is OI? It tells us how much open...
Magus@TraderMagus
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Feb 06, 2025
~2 min read
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Open Interest(OI) Thread:
What is OI?
It tells us how much open value there is on a given contract.
Meaning when OI is 1billion $ on contract btcperpxyz, there is 1 billion dollar worth of longs and shorts open.
What is OI?
It tells us how much open value there is on a given contract.
Meaning when OI is 1billion $ on contract btcperpxyz, there is 1 billion dollar worth of longs and shorts open.
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When a position is opened it is always 1:1
Example to explain this:
Two participants needed to facilitate trade, taker and maker. For this example we are the taker. We market buy one BTC perp contract. When we do this, the total OI of that contract will go up the value of 1 BTC.
Example to explain this:
Two participants needed to facilitate trade, taker and maker. For this example we are the taker. We market buy one BTC perp contract. When we do this, the total OI of that contract will go up the value of 1 BTC.
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So doe this mean there's now one more BTC worth of longs than shorts?
No.
When we opened one BTC at market, the passive players or market maker also increased their exposure by negative one BTC
This means OI requires nuance to understand other participants positioning
No.
When we opened one BTC at market, the passive players or market maker also increased their exposure by negative one BTC
This means OI requires nuance to understand other participants positioning
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First we'll go over open and close:
If price goes up & OI goes up = Longs are opening at market
If price goes up & OI goes down = Shorts are closing at market
If price goes down & OI goes up = Shorts opening at market
If price goes down & OI goes down = Longs closing
If price goes up & OI goes up = Longs are opening at market
If price goes up & OI goes down = Shorts are closing at market
If price goes down & OI goes up = Shorts opening at market
If price goes down & OI goes down = Longs closing
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Next is time. When using time-based candles(most common), the longer the timeframe the less reliable the interpretation of long/short open/close can be.
The result is, the lower the timeframe the more useable
The result is, the lower the timeframe the more useable
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The final simple way to more easily interpret OI data is the inclusion of delta. Delta is the difference between market buys/sells for each candle
Example below:
OI down, Price up, Delta high = Shorts puking into passive bid
Example below:
OI down, Price up, Delta high = Shorts puking into passive bid
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Now we have an understanding of how to read open interest.
How can we use it?
Personally I find it best used in confluence with footprint. The print makes the battle between passive and agro very obvious and OI tells you opening or closing
How can we use it?
Personally I find it best used in confluence with footprint. The print makes the battle between passive and agro very obvious and OI tells you opening or closing
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I'll do another thread on margin types and OI next