Why Buy Orders Are Not a Sound Definition of Stock Open Interest

Summary

The document questions a claimed definition of open interest for stocks as the number of buy orders submitted before the market opens. It points out that counting orders rather than shares would make the measure change when a fixed quantity is split across many small orders or placed in one large order. The answer agrees that this definition is incorrect and reports finding no other source supporting it.

The exchange offers a brief critique rather than a comprehensive definition of open interest or a survey of equity-market terminology. It does not propose a replacement measure or explain how order-book depth, volume, or derivatives open interest should be distinguished. Its practical lesson is to treat the cited claim skeptically; the evidence given is the responder’s opinion and a limited search, not a formal reference or empirical analysis.

Key ideas

• The document challenges a definition of stock open interest based on the count of pre-open buy orders.
• Counting orders can produce different values for the same share quantity when order sizes differ.
• The answer rejects the cited definition but does not provide a formal replacement.
• The evidence is a brief opinion and a limited source search, rather than a systematic review.

Tags

# Open Interest on Stocks


# Open Interest on Stocks












According to the first bullet point in this explanation, "In the stock market, open interest is the number of buy orders submitted before the market opens. When the open interest is high, people are ready to add shares to their positions or initiate new positions, which means that the stock is likely to go up in price."

Is this definition mistaken, or does open interest for non-derivative securities actually count the number of buy orders? It would seem to me to make much more sense to count the number of shares which are in buy orders instead. The definition as stated would mean that open interest would depend on whether a single large order or many smaller orders are placed, holding the number of shares constant. If this definition is accurate, then why is the number of buy orders rather than the number of shares which are in buy orders the correct thing to count?

## Answer by Bob Jansen (score 2)

https://quant.stackexchange.com/a/70568

In my opinion, your intuition that their definition is crap is correct.

Google doesn’t give me another source that uses this definition either.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.