AMU Explainer: Understanding open interest as a guide to price movements on LME

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: