The presence of leverage in forex trading allows investors to execute transactions even with relatively small capital amounts, which makes the market highly attractive. Although leverage ratios as high as 1:400 or even 1:1000 are offered in some countries and by certain institutions, achieving consistent success with such high leverage is nearly impossible. In Turkey, leverage ratios are limited by the Capital Markets Board (SPK). With the regulation effective as of February 10, 2017, the maximum initial margin deposit was set at 50,000 TRY, and the maximum leverage ratio was revised to 1:10.

Although the forex market shares some characteristics with stock and futures markets, it also differs significantly and possesses unique features. To better understand these differences, it is helpful to compare the forex market’s structure with that of organized exchanges such as Borsa İstanbul (BIST) or the Futures and Options Market (VIOP).

In organized markets:

• Buyers and sellers do not know each other.
• Trading rules are standardized, including trading hours, contract sizes, order types, leverage ratios, initial and maintenance margins, and clearing procedures.
• Orders are matched within the exchange.
• A clearing institution acts as the counterparty to both buyer and seller.
• Mutual trust between trading parties is not required.

In contrast, the over-the-counter (OTC) structure of the forex market operates differently:

• Buyers and sellers know each other.
• Transaction terms are set by the parties themselves.
• There are no standardized contracts.
• Mutual trust is essential.
• Clearing operations are handled directly between the parties.

As an OTC market, forex has the following core characteristics:

• It operates at the center of OTC trading.
• Investors must have confidence in their brokerage firms.
• Prices are determined by the broker.
• Executed trades are recorded and confirmed by the broker.
• All transaction parameters are defined by the broker.
  
  
  
  

How are prices determined in the forex market?

Every major bank around the world has its own cash flow in various currencies. Banks may experience either inflows or outflows of foreign currency. To balance liquidity and meet both their own and their clients’ cash needs, they buy and sell currencies in the interbank market. These banks act as market makers not only for major currency pairs but also for spot commodities such as gold and silver.

Through global price distribution networks—such as Reuters, Bloomberg, Currenex, Hotspot FX, and FlexTrade—prices generated by these international banks are transmitted to forex brokerage firms. The brokers then add their markup (spread) on top of these interbank prices and provide them to retail investors.

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