- askmefin

# Understanding the Difference Between Open Interest versus Volume

The price of a security is determined by supply and demand. Supply and demand are inversely related to one another, which means that when supply goes up, the demand will go down. This can be seen with an example as follows: if you’re buying two apples for $1, one apple will be bought at the price of $1. If you’re selling two apples for $2, then one apple ($2) will be sold at the price point. Because there is more supply than demand, it is easier to buy than sell apples at this price point.

The opposite would be true if we had less supply than demand: let's say if you're selling four apples for $3 each. In this case, only three apples will be sold off at the price of $3 while buyers may have trouble finding enough apples to purchase. This means there's a higher chance that an apple will be purchased instead of sold because there are fewer sellers than buyers in this.

**What is Open Interest**?

Open interest is the total number of open contracts that are held on a particular commodity. It is more than just the number of traders that are currently trading in that contract or commodity. Open interest can be expressed two ways: in absolute terms or in relative terms.

In absolute terms, the open interest would be the sum of all open contracts for one type of commodity. For example, if there are 100 traders with 10 contracts each, then the open interest would be 1,000 contracts.

In relative terms, it is expressed as a percentage of total volume traded in that day's trading session. The higher the percentage, the more volatile the market will become because there are more participants trying to buy or sell at that given time.

**How Open Interest Is Calculated**

Open interest is calculated by adding the total number of open long positions to the total number of open short positions. The difference between the two numbers is called 'leverage' or "the amount of money that can change hands".

This means if someone has 10,000 bitcoins in their account and they take a long position on BTC with leverage, then they're borrowing 9,000 bitcoins from someone else. If they were to buy $10,000 worth of bitcoin at the current market price of $5,000 per bitcoin, then that would mean they've borrowed $90,000.

We can also calculate leverage by taking the inverse: so if you have 10,000 bitcoins in your account and you take a short position with leverage on BTC, then you're borrowing $90,000 worth of bitcoins based on the current price point.

**How Volume And Open Interest Relate**

Volume is the total number of shares or contracts that are traded in a given time period.

Open interest is the total number of open contracts for a particular commodity, index, or security.

An example would be as follows: let's say you have 100 apples and you want to sell them at $1 each. You'll have to wait until someone comes along because there's no way you're going to find buyers for all 100 apples at the same time. If you had 500 apples, then it would be easier to find buyers because 500 apples can be sold off at any one time.

Simply put, if the demand is high (there are many buyers) but supply is low (there are few sellers), then prices will go up; conversely, if demand is low (few buyers) but supply is high (many sellers), then prices will go down.

When supply goes up and demand goes down, it leads to higher prices; when supply goes down and demand goes up, it leads to lower prices.

**Conclusion**

Open Interest is a term used in the futures and options markets. Open interest is the total number of outstanding contracts for a particular commodity or financial instrument. The open interest is calculated by adding the number of contracts that have been traded but not yet offset by a trade in the opposite direction. In other words, open interest is the number of contracts that have been traded but not yet offset.

Volume, on the other hand, is the number of shares or contracts that have been traded in a particular period of time. The volume is calculated by the number of shares or contracts traded multiplied by the ticker's price.