What is Open Interest and Why it matters?

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What is Open Interest and Why it matters?

• Open Interest (OI) = total number of outstanding (open) futures or options contracts that haven’t been settled, closed, or expired. Wikipedia+2Wikipedia+2
  
• It includes both long and short positions (each contract has a buyer & seller).
  
• Rising OI + rising price → often interpreted as strong trend confirmation (new money entering).
  
• Rising OI + falling price → might indicate strong shorting pressure or pessimism building.
  
• Declining OI during a trend → suggests traders are closing positions, possibly trend exhaustion.
  

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So OI is a measure of liquidity, commitment, and conviction in the derivatives market.