Forex

Forex is an investment vehicle that enables investors to trade currency pairs and different financial instruments.

In leveraged markets, it is possible to create larger trading volumes with a small amount of margin. Therefore, while it increases potential return opportunities, it likewise brings risk. Consequently, it is of great importance that investors closely follow the markets and apply a sound risk-management strategy.

What Is Forex?

Forex is the world’s most liquid financial market in which the relative values of national currencies are bought and sold on a global scale. Thanks to the leverage mechanism, investors can open larger positions with a small amount of margin. This market is open 24 hours on weekdays and is actively followed by many investors. In the Forex market, in addition to different national currencies, commodities such as gold and silver are also traded.

How Does the Forex Market Work?

The Forex market operates through an electronic communications network established among various financial centers around the world. In this network, banks, brokerage firms, hedge funds and individual investors continuously buy and sell through currency pairs. Investors try to foresee market movements by closely following global economic developments, political events and central-bank decisions. This broad participant base and 24-hour trading facility keep Forex liquidity and speed consistently high.

What Is a Leveraged Transaction and How Does It Work?

A leveraged transaction is based on the principle of opening positions in financial markets with volumes larger than the existing margin. For example, a leverage ratio of 1:10 allows a transaction of 10 units with 1 unit of margin. Leverage can increase potential profits as well as possible losses. Therefore, strategies such as stop-loss orders or appropriate position sizing are recommended to keep risk under control.

What Are the Advantages and Risks of Trading in the Forex Market?

Which Assets Are Traded in Forex?

USD, EUR, GBP, AUD, CAD, CHF and JPY are the major currencies. In currency quotes, the first currency is the base currency and the second currency is the counter currency. While the base currency is considered for buy-sell transactions, profit-and-loss calculation is made over the counter currency. In addition, valuable metals such as gold and silver and certain indices are traded on Forex platforms, offering investors portfolio-diversification opportunities.

How Are Forex Transactions Executed?

At Yapı Kredi Invest, to start Forex transactions it is first necessary to execute six business days and 50 trades in a demo account. Then the account-opening procedures are completed.

1. Margin Deposit: Margin is deposited at the specified lower limits to become ready to trade.
2. Platform Use: Currency pairs or other assets are selected on the FXBox MetaTrader 5 trading platform.
3. Order Entry: Buy or sell orders are entered and the market is followed.
4. Risk Management: Stop-loss and take-profit levels are set so that positions are kept under control.

Which Platforms Are Used in ForexTransactions?

The MetaTrader 5 electronic trading platform used in leveraged trading was launched in 2010 by Russia-based MetaQuotes Software Corporation. MetaTrader 5 is a platform preferred today by millions of users and hundreds of brokerage firms in the global Forex market. MetaTrader 5 serves with both computer and mobile versions. Yapı Kredi Invest holds its own MetaTrader 5 server license, and its active-active servers are hosted in data centers with high security standards.

How Are Leverage Ratios Determined in Forex?

Leverage ratios are determined in line with countries’ legal regulations and the policies of brokerage firms. In Turkey, regulatory authorities such as the Capital Markets Board of Turkey (CMB) may impose limits on maximum leverage ratios in order to protect investors.

What Is a Swap in Forex?

A swap is the overnight carrying cost applied when an open position is rolled over to the next business day. This cost arises from the interest-rate differentials of the currency pair traded. If the interest rate of the bought currency is higher than that of the sold currency, the investor may earn swap income. In the opposite case, a swap cost occurs.

What Are the Order Types in Forex?

The most frequently used order types in Forex are:

• Market Order: Used to buy or sell instantly at the prevailing market price.
• Limit Order: Enables buying or selling when the price reaches a specified level.
• Stop-Loss Order: Performs an automatic sale or purchase at a pre-determined price to limit loss.
• Take-Profit Order: Automatically closes the position when the market reaches the specified profit target.

What Are Long and Short Positions in Forex?

In the Forex market, investors open buy- or sell-side transactions by predicting price movements. These transactions are called long and short positions.
Long Position:

• The investor opens a buy-side transaction, anticipating that the price will rise.
• For example, an investor who thinks that the euro will appreciate against the dollar in the EUR/USD pair enters a position by buying euros.
• When the price rises to the target level, the position can be closed and profit taken.

Short Position:

• The investor opens a sell-side transaction, predicting that the price will fall.
• The investor sells an asset that he does not own and, when the price falls, buys it back at a lower price to close the position.
• Used by investors who wish to profit from downtrends.
• Because it may carry a high loss risk if the price rises unexpectedly, it should be managed carefully.