MetenaOpen interest: definition and how to read it
The total value of derivative contracts still open. Record open interest signals a lot of leverage in the market, so sudden moves are more likely.
Definition
Open interest adds up the value of all futures and perpetual contracts still open on an asset. It rises when new positions open and falls when they close, by choice or by liquidation.
It is read with the price. A rising price with rising open interest signals new buyers, often leveraged. Very high open interest makes the market fragile: a sharp drop can trigger chain liquidations, which deepen the drop.
It does not say who is buying or selling: every contract has both. To see which side the leverage leans to, read it with the funding rate.
Worked example
During mass liquidations, as on 12 March 2020 or in May 2021, bitcoin’s open interest dropped sharply within hours, along with the price: leveraged positions closed automatically, rather than sales by choice.
In Metena
Open interest is available as a condition in a Metena strategy, for example to pause larger purchases when market leverage is at its highest.
Notify me at launchRelated terms
- Funding rate
- A periodic payment between buyers and sellers on perpetual contracts. Strongly positive, it indicates leveraged buyers dominate and the market is stretched.
- Leverage
- Borrowing to take a position larger than your capital. It amplifies gains and losses alike and can lead to the position being liquidated.
- Volatility
- The size of an asset’s price swings. High volatility means large moves, up as well as down.
- Stress test
- Simulating your rules through a historical shock, such as the March 2020 crash, the LUNA collapse or the FTX bankruptcy, to see what they would have absorbed.
Put these ideas into practice.
Write your strategy in a few minutes: Metena analyses it when you ask and explains each term in context.
Notify me at launchEducational content. It is not investment advice. Crypto-assets carry a high risk that can go as far as the total loss of capital.