Volume and open interest

FX gave you no volume worth the name, and index volume needed a paragraph of caveats. Commodities hand you something better than either, and it is not volume. It is the other column: open interest.

Two different questions

Volume asks: how much changed hands today? Open interest asks: how many promises are outstanding tonight? A futures contract is created when a new buyer meets a new seller, and destroyed when both sides close. So the same trade can raise open interest, lower it, or leave it flat - and that difference is what the number is for.

The four combinations

• Price up, open interest up: new money is building longs. The move is being funded.
• Price up, open interest down: shorts are closing. The rally is an evacuation, and it ends when the evacuating are done.
• Price down, open interest up: new shorts are being established - conviction, not liquidation.
• Price down, open interest down: longs are giving up and leaving.

Treat these as a reading aid, not a signal machine: each says who was acting, not what happens next. But 'this rally is new positioning' and 'this rally is a short squeeze' are different events, and open interest is the only public number that routinely tells them apart.

What else it shows you

The roll, live: as expiry approaches, open interest drains out of the front month and fills the next - lesson 2's migration, counted contract by contract. And the market's total size over time: a price move on rising open interest carries more of the market with it than the same move on a shrinking one.

One habit to close on: open interest updates once daily and settles a day in arrears, so it is an evening reading, not a tick-by-tick one. It rewards exactly the kind of trader this track is trying to build - one who reads the market's books, not just its mood.