Risks In The Forex Market
Forex market is the largest and also the fastest growing financial market in the world. While trading in the Forex market, an investor is simultaneously buying one currency and selling another. For example, if the investor buys Euros and sells Dollars, there must be another market player willing to do the opposite of his transaction. This is exactly why forex trading is a zero-sum game, and for every winning player there is a losing player. In addition, since the investor’s perception of the market is dangerously optimistic in this market, the investor may be influenced by misleading market promotions and ignore the risk of the market.
There is a leverage mechanism in the Forex Market that allows financial transactions to be carried out above the principal owned.
Leverage mechanism is one of the main causes of risk in the forex market. As a result of the increase in investor grievances and complaints, with the last amendment made in the legislation in our country on 10.02.2017, the leverage ratio, which was previously 1:100, was reduced to 1:10, and a minimum of 50.000 TL or equivalent foreign currency amount was determined as the initial collateral amount in order to perform leveraged transactions.
This change was reacted by the representatives of forex companies in the sector on the grounds that it would cause a serious contraction in the market and company closures.
They stated that this new 1:10 ratio will shift investors to foreign forex companies that serve with a high leverage ratio or they will again turn to under-the-counter brokerage houses. All these developments have necessitated a more detailed examination of the risk of the Forex Market.
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