Global Trade
December 5, 2025
AMU Explainer: Understanding open interest as a guide to price movements on LME
Written by Greg Wittbecker
Over the years, I’ve spent hours trying to demystify London Metal Exchange (LME) “open interest” versus “volume” for clients. The difference can be hard to fathom.
Let’s start with basic definitions.
Volume is the number of futures contracts (in our case, LME) that trade or change hands on a given trading session. It measures activity and liquidity in a market for a given period. Most volume statistics are reported daily.
Open interest is the total number of outstanding long or short futures positions that must always be equal. It’s important to remember, as positions always have to offset. Open interest is calculated by counting the number of contracts that are open at the end of each trading day. Examples of this include:
- If a buyer and seller open a new contract today = open interest increases by one
- If a buyer and seller close an old contract today = open interest decreases by one
- If a buyer opens a new contract and a seller closes an old contract = open interest stays the same.
Volume may provide some indirect price guidance based on day-to-day change in volume. However, open interest goes much deeper in giving us a perspective on who’s trading that volume and what their price bias is.
Here are some additional definitions to keep in mind:
New bull – Someone entering the market who expects prices to rise and who takes a long position by buying.
Old bull – Someone who has an existing long position and may elect to liquidate their position by selling, either to take profits or to limit losses.
New bear – Someone entering the market who expects prices to fall and who initiates a short position by selling.
Old bear – Someone who has an existing short position and may elect to liquidate their position by buying, either to take profits or to limit losses.
On any given day in the LME, we have old and new bulls and old and new bears making decisions to change their positions. Those decisions may be aggressive or cautious depending on the contract holder’s view of the market. Those decisions, taken in combination with the change in prices, provides good visibility into how market participants see price performance going forward.
The following table gives you the nine possible combinations of open interest condition. It weighs the change in the three variables of price (rising, steady or falling) versus the three variables in open interest.
The nine open interest scenarios
Rising price environment
| SCENARIO | PRICE MOVEMENT | OPEN INTEREST | BUYER PROFILE | SELLER PROFILE | NET EFFECT |
| 1 | Rising | Rising | New Bull (Aggressive) | New Bear (Cautious) | Bullish |
| 2.1 | Rising | Steady | New Bull (Aggressive) | Old Bull (Taking Profit) | Bullish |
| 2.2 | Rising | Steady | Old Bear (Aggressive) | New Bear (Cautious) | Bullish |
| 2.3 | Rising | Steady | New Bull (Aggressive) | New Bear (Cautious) | Bullish |
| 3 | Rising | Falling | Old Bear (Aggressive) | Old Bull (Taking Profit) | Bullish-to-Bearish |
Steady price environment
| SCENARIO | PRICE MOVEMENT | OPEN INTEREST | BUYER PROFILE | SELLER PROFILE | NET EFFECT |
| 4 | Steady | Rising | New Bull (Aggressive) | New Bear (Aggressive) | Neutral |
| 5.1 | Steady | Steady | New Bull (Aggressive) | Old Bear (Aggressive) | Neutral |
| 5.2 | Steady | Steady | OId Bear (Aggressive) | New Bear (Aggressive) | Neutral |
| 5.3 | Steady | Steady | New Bull (Aggressive) | New Bear (Aggressive) | Neutral |
| 6 | Steady | Falling | OId Bear (Aggressive) | Old Bear (Aggressive) | Neutral |
Falling price environment
| SCENARIO | PRICE MOVEMENT | OPEN INTEREST | BUYER PROFILE | SELLER PROFILE | NET EFFECT |
| 7 | Falling | Rising | New Bull (Cautious) | New Bear (Aggressive) | Bearish |
| 8.1 | Falling | Steady | Old Bear (Cautious) | New Bear (Aggressive) | Bearish |
| 8.2 | Falling | Steady | New Bull (Cautious) | Old Bull (Aggressive) | Bearish |
| 8.3 | Falling | Steady | New Bull (Cautious) | New Bear (Aggressive) | Bearish |
| 9 | Falling | Falling | Old Bear (Cautious) | Old Bull (Aggressive) | Bearish-to-Bullish |
Understanding the Open Interest Table
To gain a basic understanding of these combinations, it is helpful to give you a snapshot of what LME prices have done over the past six months, as shown below:
| MONTH | END-OF-MARKET PRICE | OPEN INTEREST | PRICE DIRECTION | INTEREST DIRECTION | CONDITION | SCENARIO |
| June | $2,593 | 691,457 | Baseline | Baseline | Baseline | Baseline |
| July | $2,580 | 679,194 | Steady | Falling | Neutral | 6 |
| August | $2,621 | 664,984 | Rising | Falling | Bullish-to-Bearish | 3 |
| September | $2,668 | 699,477 | Rising | Rising | Bullish | 1 |
| October | $2,885 | 753,505 | Rising | Rising | Bullish | 1 |
| November | $2,826 | 704,904 | Falling | Falling | Bearish-to-Bullish | 9 |
Over the trailing six months, prices have risen $233 per metric ton, comparing month-end settlement prices on June 30th versus November 28th. Open interest has risen 13,447 lots (336,175 metric tons). Rising prices + rising open interest is a classic confirmation of new longs entering the market, as shown in Scenario #1.
Why This Matters
The number-one question on most people’s minds is “What’s the LME aluminum price going to do next?”
We’d suggest you take some time to follow changes in LME high-grade aluminum open interest versus price to give you a better sense of market sentiment and direction.
Confused? You are not alone.
Many people over my 40+ years trading aluminum have been frustrated by the combination of old and new bulls/bears getting in or out of positions. However, if you keep the above table handy when you are comparing prices to changes in open interest, you’ll get the hang of it, and it might give you more confidence in understanding the market.
Open interest is published on the LME website at LME.com and, by registering (free of charge), you can download historical data. If you still stuck, call me at 865-621-4564 or email me at wittsendCA@outlook.com or Greg.Wittbecker@crugroup.com. I’m more than happy to walk you through it. – GW
