🤯Open Interest

Rollie Finance sets a maximum open interest (maxOI) and a maximum net open interest (maxNetOI) to protect our liquidity providers, which will be updated periodically to reflect the optimal limits for the platform, balancing growth needs and security for our liquidity providers.

How Open Interest (OI) works:

For the BTC/USD trading pair example, the maximum open interest (maxOI) for both the long and short sides is set at 6M.

The current long open interest is 2M, below the maximum limit. The current short open interest is 1M, below the maximum limit.

To calculate the net open interest (netOI) for risk management purposes, we take the absolute value of the difference between the long and short open interest. In this case, the netOI is 2M - 1M = 1M.

The maximum net open interest (maxNetOI) cap limits the net market exposure for a specific asset based on the maximum market risk allowed. If the netOI exceeds the maxNetOI limit, the market exposure is too high and needs to be controlled. In this example, the netOI of 1M has reached the maximum net open interest cap.

As a result, new long positions can no longer be opened because the net open interest has hit the maximum net open interest cap. However, the vault can still accommodate an additional 1M short open interest without altering the long open interest.

This mechanism helps manage risk by controlling the net market exposure within predefined limits, ensuring the trading model remains secure and stable.