Although open interest and trade volume are often used interchangeably, the two terms refer to completely different measures. The trader who currently owns 10 option contracts on a given day sells them to a new trader who enters the market, and the open interest number for that specific option remains unchanged. As a result of a trader moving their position from one account to another, there have been no new option contracts introduced to the market. On the other hand, the sale of ten option contracts by an existing option holder to an option buyer results in an increase in the total trading volume for the day.

Open interest and trading volume are key indicators in the futures and options markets, providing insights into market activity and trader sentiment. Trading volume represents the number of contracts traded during a specific period, reflecting the level of market activity and liquidity. High trading volume indicates a highly active market, often coinciding with significant price movements.

Open interest, on the other hand, measures the total number of outstanding contracts that have not been settled. It shows the flow of money into the market and can signal the strength of a price trend. When both open interest and trading volume increase simultaneously, it suggests a strong and continuing trend, either bullish or bearish. Conversely, declining open interest alongside rising volume might indicate trend exhaustion or the end of a price movement.