Open Interest

Open interest is the total number of outstanding futures contracts/options at the end of each trading day held by the market participants. It is calculated by counting the totals from either buyers or sellers (both are not added together) for any given market.

Traders primarily use this value as an indication of an impending change of market trend or for the conformation of the price action. Open interest coupled with market volume (that measures the intensity or pressure behind the price trend) is often used to confirm price trend. Combined with price and volume, open interest indicates the strength of the market for a given time.

Price	Volume	Open Interest	Interpretation
Rising	Rising	Rising	Market is Strong
Rising	Falling	Falling	Market is Weakening
Falling	Rising	Rising	Market is Weak
Falling	Falling	Falling	Market is Strengthening

Time	Trading Activity	Open Interest
Day 1	A buys 1 contract and B sells 1 contract	1
Day 2	C buys 5 contracts and D sells 5 contracts	6
Day 3	A sells 1 contract and D buys 1 contract	5
Day 4	E buys 5 contract from C who sells 5 options contracts	5

Gold and Open Interest

In case of gold, just like with other futures contracts, open interest can be used along with volume to put price moves into proper perspective. Gold rising on increasing open interest and volume is a sign that the prices are likely to continue to rally, whereas gold rising along with decreasing open interest and/or volume might suggest that the buying power is drying up and thus at least a corrective downswing is to be expected.