Open Interest and Funding

Open interest (OI) is a statistical measure of market activity, it measures the flow of money into the futures and options market.

While it is more commonly measured in the stock market, Open Interest is now being utilised by expert traders in the cryptocurrency derivatives market.

Open Interest is also useful to identify the strength of macro trends.

Knowing the Open Interest can reveal details behind a candlestick.

For example; is an uptrend truly bullish with new money coming in? Or did short positions closing cause the price to rise?

You won't typically see funding rates if you're spot trading stocks and cryptocurrency, their relevance is directed towards futures, options, and perpetual swaps.

Before a futures contract is due to expire the price could deviate from the spot price. The difference between the contract price and the spot price is referred to as the 'Basis of the futures contract'.

Eventually, it will reach the point of zero as the contract reaches a settlement point.

ByBit offers perpetual swaps that do not have an expiry date, so they have to create a mechanism to supplement the 'Basis' to tether the last traded price to the spot price.

This is where funding comes into play. Funding helps ByBit ensure that the last trade price remains anchored to the overall global spot price.

Bybit's funding rate is comparable to the interest cost for holding contracts for margin trading.

It is important to note that ByBit does not gain anything from these funding rates, as they are directly exchanged between long and short positions.

However, even if you're not trading contracts on ByBit, knowing the funding rate can contribute to your analysis.

This tutorial will provide you with an in-depth walkthrough of where to look for Open Interest and funding rates, and how to use them to identify strengths and weaknesses in the price action.

Time Stamps

2:21 – ETH Previous COTW (DO NOT TRADE THIS)

8:53 – BTC TRADE DANIEL TOOK

16:53 – OPEN INTEREST AND FUNDING

• OI is a must
• Useful statistic to follow when trading macro trend (you see how healthy it is)
• You can find patterns (for instance BTC used to fall every time OI hit 1 billion) – not too recommended
• With funding context is important

22:18 – OPEN INTEREST

• Price Rising > Volume Increasing > OI increasing> Strong uptrend = Bullish
• Price Rising > Volume Decreasing > OI decreasing > Weak uptrend = Bearish
• Price Declining > Volume Increasing > OI increasing > Strong downtrend = Bearish
• Price Declining > Volume decreasing > OI decreasing > Weak downtrend = Bullish

37:48 – FUNDING

• Perpetual swaps do not have an expiry date. Price ‘needs’ to stay near the spot price so when it starts to reach extreme differences off of the spot to leveraged price, funding is used to make traders open or close positions
• Positive funding = long paying shorts
• Negative funding = shorts paying longs
• 01-0.02 = normal, 0.02-0.075 = very high, 0.075+ is extreme
• you always have to look at the context though – people don’t mind paying if the demand is high

55:13 – Q&A

1:08:13 – BTC TA and Q&A

EXAMPLE: BONUS VIDEO 10

Websites to check OI: Tradinglite, Tensorcharts, Sk3w, Coinalyze, ExoCharts