In this section of our training, we will discuss the key risks associated with forex trading.

The most important risk to understand in forex is leverage risk.
Leverage refers to the ability to open positions that are multiple times larger than your account balance.
Leverage risk, on the other hand, is the potential magnitude of gain or loss in your account balance, depending on how large your open position is relative to your capital.

Leverage Risk

To illustrate leverage risk, consider the following example:
Suppose an investor has €1,000 in their account and uses 1:100 leverage to buy 100,000 EUR/USD at a price of 1.3500.
If the pair rises by 1% to 1.3635, the investor’s account balance doubles to €2,000.
However, the opposite is also true — if the pair drops by 1%, the investor could lose their entire €1,000 balance.

In the next presentation, we will explore the right and wrong ways to use leverage and why many investors lose significant amounts of money.

Let’s analyze another example:
Assume a starting account balance of $1,000, EUR/USD at 1.3010, and a stop level of 30%.
A 30% stop level means the position will automatically close if the account equity falls to $300.
In this case, if the investor uses 1:100 leverage, opening a $100,000 position means holding approximately €76,000 worth of exposure.
If EUR/USD falls to 1.2912, the account balance drops from $1,000 to $250, triggering a stop-out.
Even if the market rises afterward, the investor cannot benefit because the position has already been closed.

Now consider using lower leverage:
With the same starting balance ($1,000), if the investor opens a $10,000 position instead, a 1% price drop would only reduce the account to $923, avoiding stop-out.
If the price then rises to 1.3050, the investor makes a profit.
This shows that using the correct leverage can be the difference between profit and loss.

Market Volatility

In addition to leverage risk, another major risk for forex investors is price volatility.
When high leverage is combined with strong market fluctuations, the risk of losing money increases dramatically.
For example, in a market using 1:100 leverage, a 2% price move can change the account value by 200%.

Currency pairs can therefore be extremely risky due to their high volatility.
Financial markets are closed over the weekend, but political or economic developments during that time can cause price gaps when markets reopen on Monday.
If there is a 2% gap between the closing and opening prices, an investor holding a 1:50 leveraged position could lose their entire balance.
A 5% gap could completely wipe out the account of an investor trading with 1:20 leverage.

Broker and Institutional Risks

Price gaps pose risks not only for investors but also for brokerage firms.
Under SPK regulations in Turkey, forex investors cannot lose more than the funds in their accounts.
If a price gap causes a loss exceeding the investor’s balance, the broker must cover the negative difference.

Unlike some foreign brokers that hold client funds in their own accounts, Turkish brokers are required by law to hold all client forex funds in Takasbank.
This ensures that client funds are not part of the broker’s balance sheet, protecting investors from broker insolvency.

Technology Risks

Another important category is technology risk.
Forex brokers connect to liquidity providers using dedicated high-cost lines (such as Radianz) to ensure stable price feeds.
However, investors connect to trading platforms via standard internet connections, which may experience interruptions.

If the connection between the investor’s platform and the broker is lost, several scenarios may occur:

• Prices may freeze, while orders are still being sent;
• Prices may move, but orders may fail to execute;
• Or traders may believe their orders were executed when they were not.

In such cases, investors may be unable to close positions or may face unintended exposure, leading to significant financial risks.