How to Trade the Turkish Lira

Turkey’s economy is the 19th largest in the world. It is one of the leading producers of agricultural products, machinery, consumer electronics, and transport vehicles.  

Turkey is also a politically important country at the confluence of Europe and Asia. 

However, the Turkish economy has faced tough times and its current account deficit has grown significantly impacting the Turkish Lira. Volatility can be a good thing for traders, however, also comes with risks which must be considered in any given trading plan. 

Given the economic climate, one may wonder, how to trade the Turkish Lira?  

In this article, we will explore how to trade the Turkish Lira, the Turkish economy, its advantages and disadvantages, and more. Let’s begin! 

A Strategic Overview of the Turkish Economy 

The geographical location of Turkey drives its strategic importance. A part of the country is located in Europe, one of the centres of global power. The other part of the country is considered to be in Asia, a region rising in the power ranks. 

Turkey can serve as a corridor connecting the Middle East and Asia to Europe. Turkey is also an Islamic country and therefore has the potential to bring influence to other Islamic countries in Africa and Asia. 

Turkey is a member of the powerful NATO alliance and in fact, has the second-largest military in that alliance.  

While the geographical location of Turkey drives its economic strength, the country has a population of over 80 million. Being a developed modern nation, Turkey also offers a reasonably sized market as an economic opportunity for global companies. 

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How to Trade the Turkish Lira: A Deeper Look at the Lira 

The Turkish Lira is the official currency of Turkey’s $1 trillion economy. It was introduced in 1927 (a new version came out in 2005) and has had an eventful history. 

In its early years, the Turkish Lira was pegged to the pound, the franc, and even the US dollar at varying times. 

Close to the turn of the century, in 1995 and 1996, and then again from 1999 to 2004, the Turkish Lira was in the Guinness Book of World Records for being the world’s least valuable currency. 

While Turkey’s economy is considered to be developed, it has been running a high current account deficit.  

Government policies have focused on driving the economy through demand-side stimulus and credit booms rather than through greater productivity. 

The recent jump in inflation hasn’t helped Turkey’s situation either. The Turkish Inflation Research Group, in a recent study conducted in 2023, found that prices were up almost 30% for the first 5 months of 2023. 

All of these economic factors have been hitting the Turkish Lira. The currency used to trade at 5 TRY to 1 USD back in 2018.  

That exchange rate has shot up to over 26 TRY to 1 USD as of mid-2023. It is a significant devaluation against the US dollar. 

The currency has been highly volatile during the past 3 or 4 years. The TRY has crashed 7% in one day on a few occasions.  

In 2018, the price dropped a staggering 20% in one day. The TRY’s implied volatility in May 2023 had risen to an incredible 45%, the highest level in about 15 years. 

Interestingly, amid all the gloom, the Turkish stock indices were among the world’s top performers in 2022.  

Traders who can handle volatility may consider trading the TRY, however, it is always of utmost importance to first analyse your appetite for risk and risk management style when trading or investing. 

If you would like to practise online trading with virtual funds via our demo account, you can do so without the risk of using real money.  

Test out trading the USDTRY CFD pairing, amongst many other CFD pairings, by clicking the banner below to register a free demo account: 

Advantages and Disadvantages of Trading the Turkish Lira 

As with all financial assets, they always come with both advantages and disadvantages. 

Some of the advantages of trading the Turkish Lira are: 

• Exploiting the high volatility with proper risk management 
• Existence of pricing anomalies due to lower trade volumes of TRY 
• Carry trading opportunities as the Turkish interest rate is relatively high at 15%. 

Some of the disadvantages of trading the Turkish Lira are: 

• TRY is not in the top 10 traded currencies. Hence, liquidity issues could arise and the bid-ask spreads could be wide 
• While high volatility can lead to outsized gains, being on the wrong side can potentially wipe out traders. High volatility can be a double-edged sword 
• Turkey’s politics and economy can be unpredictable 

To get a better understanding of the Daily price fluctuations of the USD vs TRY currency pair, view the below TradingView chart:

*Past performance is not reflective of future results.

Conceptualizing Trades Involving the Turkish Lira 

Carry trading is one of the most commonly traded forex strategies. It involves buying a currency of a country with a low-interest rate, then exchanging it for a currency with a high-interest rate and investing in the higher interest rate country’s bonds. 

The key assumption for a carry trade to work is that the exchange rate between the low-interest-rate and high-interest-rate currencies stays more or less constant over a period of time.  

A trader could potentially earn the difference in the low and high-interest rates as profit, while naturally, this can equally also amount to a loss. 

If carry trading is too advanced or sounds too technical, then traders can also use price-action analysis to take trades.  

This approach can be systematic or discrete. A discrete trade example would be observing the TRY for a breakout pattern (or a breakdown going by recent trends) and then taking a trade with a stop loss in place. 

A systematic approach would be using technical indicators like an oscillator or a moving average to generate buy and sell signals. More advanced traders who have access to TRY data can mine it to find anomalies or patterns and trade them. 

An example of a pattern would be going long after a range-bound day or after an up day.  

Another pattern could be going long or short on a specific weekday based on whether the price closed up or down that day. Such patterns should be thoroughly backtested and should be analyzed statistically. 

You can test various trading indicators using the innovative and popular MetaTrader 5 platform, which we have available for free use to Admiral Markets users. Click the banner below to access: 

How to Trade the Turkish Lira: Conclusion 

Do you now have a better idea of what the Turkish Lira is and how it has evolved? 

We talked about the importance of Turkey in the global economic and geopolitical landscape and also touched upon the volatility that seems to define the Turkish Lira. 

One important topic covered in this article was the concept of carry trade. It can be applied to not just the Turkish Lira, but to a host of other currencies. We also talked about discretionary vs systematic trading. 

Finally, we would like to end the article with a few words on risk management. Any kind of trading is risky. There is no profit without risk. Volatile assets like the Turkish Lira especially require proper risk management. 

The idea is not to diminish your account and protect your trading capital. This can be achieved by knowing what you are trading, what is the most you are willing to lose, and sizing your positions correctly. 

Risk management is a system that has to be implemented and followed diligently.  

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