Open interest represents the total number of outstanding derivative contracts (futures or options) that have not been settled, delivered, or closed through offsetting trades. Open interest increases when new positions are created and decreases when positions are closed or settled. This metric helps assess market activity, liquidity, and trader sentiment.

High open interest typically indicates active markets with good liquidity, while declining open interest may signal reduced market participation or position unwinding. Open interest patterns help identify potential support and resistance levels and assess the strength of price movements. Understanding open interest trends provides insights into market dynamics.

Real-world example: Crude oil futures show open interest of 2.5 million contracts, representing 2.5 billion barrels of oil equivalent in outstanding positions, indicating high market participation and substantial risk management activity in energy markets.