Open interest, also known as open commitments or open contracts, is a term used to describe the number of derivative contracts (such as futures and options) that are not closed or delivered on a particular day.
It measures the flow of money into the futures market.
For every buyer of a futures contract there has to be a seller. A contract is considered to be open during the time that a buyer or seller opens a contract until it is closed by a counter-party.
Therefore, a seller and a buyer merge to create only one contract.
Remember that open interest is not the same as the volume of options and future trades.
Open interest provides investors with key information before entering an option position, by allowing them to know how many option contracts are currently open.
The open interest position that is reported shows the rise or decline in the number of contracts for that day. It is expressed as either a positive or negative number.
According to ft.com/lexicon, Open Interest is:
“In the futures and options markets, the number of contracts that have not been offset by opposing transactions; fulfilled by delivery of the underlying security or commodity; exercised; or allowed to expire.”