<p>Open Interest refers to the total number of outstanding derivative contracts, such as futures or options, that have not been settled or closed out. It is a crucial metric in the Forex and CFD markets, providing insights into market liquidity, participation, and overall sentiment.</p>

<h2>How It Works</h2>
<p>Open Interest is calculated by adding the number of new contracts initiated during a trading session to the previous day's open interest, and then subtracting the number of contracts that were closed or settled. This process is repeated daily, creating a running total of all outstanding contracts.</p>
<p>In the context of Forex and CFD markets, open interest is typically associated with non-deliverable forwards (NDFs) and other over-the-counter (OTC) derivatives. Unlike exchange-traded futures, these contracts are not standardized and can be customized to the specific needs of the counterparties involved.</p>

<h2>Why It Matters</h2>
<p><strong>Market Liquidity and Participation</strong>: Open Interest indicates the level of market participation, as it reflects the number of traders involved in the market. A high open interest suggests that there is significant trading activity and liquidity, making it easier for traders to enter and exit positions.</p>
<p><strong>Market Sentiment</strong>: Changes in open interest can also provide insights into market sentiment. For instance, a rising open interest may suggest that traders are becoming more bullish, while a falling open interest could indicate a bearish sentiment.</p>
<p><strong>Risk Management</strong>: Monitoring open interest is essential for risk management. A high open interest can amplify market movements, leading to increased volatility. Conversely, a low open interest may indicate that the market is thinly traded, making it more susceptible to manipulation or sudden price changes.</p>