Volume counts activity. Open interest counts what is left standing. If 10,000 NIFTY futures change hands during a session but every trade closes an existing position, volume is 10,000 and open interest falls. If every trade opens a fresh position on both sides, open interest rises by 10,000.
A futures or options contract has a buyer and a seller. Open interest counts the contract once, not twice, so it is a measure of outstanding commitments rather than of participants. NSE publishes end-of-day open interest per contract in the derivatives bhavcopy and intraday figures through the option chain.
How a trade moves the number
| Buyer | Seller | Effect on open interest |
|---|---|---|
| Opening a new long | Opening a new short | Rises by the traded quantity |
| Closing an existing short | Closing an existing long | Falls by the traded quantity |
| Opening a new long | Closing an existing long | Unchanged |
| Closing an existing short | Opening a new short | Unchanged |
The price-and-open-interest table
Combining the direction of price with the direction of open interest produces the four labels you will see on every Indian derivatives screen.
| Price | Open interest | Conventional label |
|---|---|---|
| Up | Up | Long buildup |
| Down | Up | Short buildup |
| Up | Down | Short covering |
| Down | Down | Long unwinding |
Treat this table as vocabulary, not as evidence. It is a naming convention for four observable combinations. It does not establish that any of the four predicts what happens next, and published support for it in Indian equities is not something we can point you to.
Caveats
Open interest is a stock, not a flow. A high absolute level in RELIANCE options tells you a large book exists, not which direction it leans, because every long is matched by a short.
The identity of the participants is invisible. A short in the futures book may be a hedge against a cash position, an arbitrage against another expiry, or a directional bet, and the aggregate number cannot separate them.
Open interest resets at expiry. Comparing a level in the final week of a series against the same level in the first week compares two different populations of contracts, and rollover distorts both.
Exchange rules interact with the number. When aggregate open interest in a stock crosses the market-wide position limit set by the exchange, that stock enters a ban period in which only position-reducing trades are permitted. A strategy backtested without that constraint may be assuming entries the exchange would have rejected.