👐Open Interest (OI) & Available Liquidity

Open Interest (OI) & Available Liquidity are important metrics on Vibe Trading.

OI reflects market activity and Available Liquidity reflects how much liquidity is available for that asset. The two metrics combined help to gauge trader participation and overall market health.

Vibe Trading does not set Available Liquidity (“OI Limits”); these are dictated by solver support at any given time.

Understanding Open Interest (OI)

OI represents the total value of active perpetual contracts that remain unsettled. OI is determined by the deposits made by solvers and their trading capacity.

As the current OI nears the Available Liquidty, it indicates high market activity but may limit new trades until existing positions are closed.

How To Analyze Open Interest Data for Identifying Trend?

Studying open interest can help you decipher the strength of price movements, or to analyze divergence and ascertain if the market is bearish or bullish. Most traders operate under the following assumptions:

• If price increases and open interest increases – the bullish move is strong.

• If price decreases and open interest increases – the bearish move is strong.

• If price increases and open interest decreases – the bullish move is weak.

• If price decreases and open interest decreases – the bearish move is weak.

However, when OI suddenly increases significantly after a correction, this can be viewed as eager dip-buying, suggesting the correction is not over yet.

In essence, the best is to combine open interest analysis with other technical indicators, to generate the most accurate conclusions.

Trading Examples

Example 1: High OI and Market Entry

A trader sees rising OI on BTC/USDC, suggesting more traders are entering, anticipating a bullish trend. The trader opens a long position accordingly.

Example 2: Decreasing OI and Position Adjustment

A trader notices a decrease in OI on ETH/USDC, indicating traders might be closing positions, expecting a bearish market. The trader reduces their long position to mitigate risk.

Example 3: OI and Volume Analysis

A trader observes increasing OI but decreasing volume on LTC/USDC, suggesting a weakening trend. The trader waits for clearer market signals before opening new positions.

Note: These examples are for illustration only and are not financial advice.

Managing Market Activity

Vibe Traders should monitor OI and Available Liquidity to understand market activity and liquidity, and use this to inform their strategies and risk management.

High OI may limit new position openings. Awareness of these constraints is crucial for effective trade planning. Informed by OI data, Vibe traders can make strategic decisions, optimizing entry and exit points to capitalize on market conditions.