Risks in Forex
The Forex market is the largest and fastest growing financial market in the world. Forex trading is a “zero sum” game (Sendur, 2017).
For example, there is another player who volunteers to sell in exchange for buying a transaction. This means that; every winner has the same proportion of losers.
Given the high trading volumes, this zero-sum game also involves high risks. According to the studies, the average volume of daily transactions in the forex markets is said to be 5.5 trillion dollars.
- Leveraged transaction
Forex market is based on a leveraged system. This means you have the right to trade well above your principal. As you trade, you get high profits or vice versa.
Assume that you have a leverage of 1: 100. The brokerage firm makes an offer to the investor as follows; In exchange for 1.000 TL, the brokerage house allows investors to trade 100,000 TL with the effect of 1: 100 leverage and sell foreign currency. But he does not give the foreign currency in cash, he pays him if a profit is made in return for his transaction. In other words, the investor gave 100.000 TL and received 66.667 dollars from 1 US dollar = 1.50 TL in return. If the exchange rate becomes 1.60, then the investor receives 106.667 TL in exchange for $ 66.667. In other words, the investor gets a profit of 6.667 TL with a guarantee of 1000 TL. In the opposite case, for example, if the exchange rate falls to 1.40 TL, it receives 93.334 TL in exchange for 66.667 dollars. As can be seen, high leverage means both high profit and loss.
- High Volatility
Volatility is high in the Forex market and there may be sudden and unexpected developments in currencies. Since there are many variables that affect the value of currencies, close monitoring and correct timing are very important. For this reason, investors who want to be protected from loss should constantly follow their positions. If they cannot follow, they should not leave open positions. It should not be forgotten that the position not followed is vulnerable.
- Over-The-Counter (OTC) Market
Unlike regulated futures options market, the off-market retail forex market does not have a central market. In this market, Forex broker determines the transaction price on its own, therefore the investor must trust that the brokerage house gives fair price to the investor.
- Infrastructure and Internet Connection Risk
If your internet provider fails to reach the platform caused by your power outage or your PC, you run the risk of not being able to intervene on time. (You can contact your brokerage firm and intervene in your positions from the operation center.)
Author : Iraz Sümer ( This article contains excerpts from Şendur 2017 article. )