What is the difference between volume and open interest

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Options or futures contract trading volume can only increase while open interest can either increase or decrease. While trading volume indicates the number of contracts that have been bought or sold, open interest identifies the number of contracts that are currently held.

Volume and open interest are two key measurements that describe the liquidity and activity of contracts In the options and futures markets. However, their meanings and applications are different. Volume refers to the number of contracts traded in a given period, while open interest denotes the number of active contracts

Trading volume measures the number of options or futures contracts being exchanged between buyers and sellers, identifying the level of activity for that particular contract. For every buyer, there is a seller, and the transaction itself counts toward the daily volume

Open interest indicates the number of options or futures contracts that are held by traders and investors in active positions. These positions have not been closed out, expired, or exercised. Open interest decreases when holders and writers of options (or buyers and sellers of futures) close out their positions. To close out positions, they must take offsetting positions or exercise their options. Open interest increases once again when investors and traders open new long positions or writers/sellers take on new short positions. Open interest also increases when new options or futures contracts are created.