What Is Open Interest in Crypto? OI and Funding Rates Explained
Open interest is the total size of open futures or perpetual positions in a market. Learn how OI changes and how to read it with price and funding rates.
Updated
Open interest (OI) is the total size of futures or perpetual contracts that are currently open in a market, meaning positions that have been opened and not yet closed. Every open contract has one long side and one short side, and open interest counts each contract once. It shows how much capital and leverage is committed to a market, not which direction traders favor.
Key takeaways
- Open interest counts open positions at a moment in time; volume counts trades over a period.
- OI rises when new positions open and falls when positions close or are liquidated.
- OI is quoted in contracts or coins and in notional value (contracts × price).
- On its own, OI is neither bullish nor bearish; each long has a matching short.
- Read with the funding rate, OI shows who is crowded and how much is at stake.
- Sharp OI drops often mark liquidation cascades.
How open interest changes
Whether open interest changes depends on whether each side of a trade is opening or closing a position. There are three cases:
| Buyer | Seller | Effect on OI |
|---|---|---|
| Opens a new long | Opens a new short | Increases |
| Closes a short | Closes a long | Decreases |
| Opens a new long | Closes an existing long | Unchanged (a position changes hands) |
Example: a new perpetual market starts with zero OI. Trader A buys 10 contracts from Trader B, who opens a short. OI is now 10. Trader C then buys 4 contracts from Trader A, who is closing part of their long. OI stays 10, because a position simply moved from A to C. Finally, Trader B buys back 4 contracts from Trader C, and both are closing. OI falls to 6.
Open interest in contracts vs notional value
Data sites often show OI in dollars, which mixes two things: the number of contracts and the price.
Notional OI = open contracts (in coins) × price
Assume a hypothetical token's perpetual has 5,000,000 tokens of open interest at $2.00:
- Notional OI = 5,000,000 × $2.00 = $10,000,000
If the price rises to $2.40 and not a single position is opened:
- Notional OI = 5,000,000 × $2.40 = $12,000,000
Dollar OI rose 20%, but no new money entered. To tell whether traders are adding positions, look at OI in coins or contracts.
Open interest vs trading volume
| Open interest | Trading volume | |
|---|---|---|
| Measures | Positions still open | Contracts traded |
| Time frame | A snapshot | Over a period, such as 24 hours |
| Resets | No, it carries over | Yes, each period |
| Tells you | How much leverage is committed | How active the market is |
A market can have high trading volume with flat OI if traders are opening and closing quickly. It can also have high OI with low volume if large positions are simply being held.
Reading open interest with price
| Price | Open interest | Common interpretation |
|---|---|---|
| Rising | Rising | New longs entering; trend backed by fresh positions |
| Rising | Falling | Shorts closing (short covering); move may lack new buyers |
| Falling | Rising | New shorts entering, or longs adding into the drop |
| Falling | Falling | Longs closing or being liquidated |
These are tendencies, not rules. Each long has a matching short, so the table describes which side is likely taking the initiative.
Reading open interest with funding rates
Funding shows which side is paying to hold its position. Open interest shows how large those positions are. Together they tell you how crowded a trade is.
| Funding rate | Open interest | What it often signals |
|---|---|---|
| High positive | Rising | Leveraged longs piling in and paying a premium; crowded long |
| High positive | Falling | Longs leaving; funding may soon ease |
| Negative | Rising | Shorts building; potential short squeeze fuel |
| Near baseline | Stable | Balanced market |
| Any extreme | Sudden drop | Forced closing, often a liquidation cascade |
The size of the funding transfer. Each interval, longs pay shorts roughly notional OI × funding rate (or the reverse when funding is negative). Using the $10,000,000 example above with an assumed rate of 0.05% per 8 hours:
- Per interval: $10,000,000 × 0.0005 = $5,000 paid from longs to shorts
- Annualized rate: 0.05% ÷ 8 × 8,760 = 54.75% APR
That high rate attracts arbitrage traders who short the perp and hedge with spot. Their shorts add to OI and push the perp price toward spot, which usually pulls funding back down over time.
Why open interest matters for funding arbitrage
In a funding rate arbitrage or cash-and-carry trade, OI helps you judge whether a high rate is likely to last and how much size the market can absorb.
- Low OI with extreme funding: common on small coins. The rate can flip quickly, and your own position may be a meaningful share of the market.
- High OI with steady funding: the rate is backed by broad positioning and tends to change more slowly, though the order book still sets how much you can enter.
- Rapidly rising OI with rising funding: the crowd is still building. Rates can stay high, but so can the risk of a sharp reversal that hits the short leg's margin.
Check liquidity and funding history alongside OI before sizing a position.
Common mistakes
- Reading OI as bullish or bearish on its own. It measures size, not direction.
- Comparing dollar OI across time without adjusting for price. Notional OI moves with price.
- Adding OI across exchanges without checking contract units. Some venues report in contracts, others in coins or dollars.
- Ignoring OI when funding looks attractive. A high rate on a thin, low-OI market can vanish within hours.
How ArbTide helps
The funding rates page compares live rates across venues per 8 hours, and the funding history view shows how stable a rate has been. To estimate income from a position, use the funding rate calculator.
Frequently asked questions
- What is open interest in crypto?
- Open interest is the total number or value of futures or perpetual contracts that are currently open and not yet closed. It measures how much money is committed to positions in a derivatives market.
- Is open interest the same as trading volume?
- No. Volume counts every contract traded during a period, including trades that open and close positions. Open interest counts only positions that remain open at a point in time.
- Does high open interest mean the price will go up?
- No. Every open contract has a long and a short, so open interest by itself is not bullish or bearish. It shows how much leverage is in the market, and it is more useful read together with price and funding rates.
- What does rising open interest with a high funding rate mean?
- It usually means new leveraged long positions are entering and paying a premium to hold them. This can support a trend but also leaves many longs exposed to liquidation if the price reverses.
- Why does open interest drop suddenly?
- A sharp drop usually means many positions closed at once, often through liquidations during a fast price move. It can also happen when traders close positions ahead of an event or when funding becomes too expensive to hold.