how much of foreign exchange (forex/fx) "deep liquidity" is really just unbacked leverage and what is the effect?

External question — Personal Finance Stack Exchange Author: Eric Original post: https://money.stackexchange.com/questions/43397 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. During the recent debacle of some high profile FX brokerages , I read some good articles that talked about FX brokers offering up to 1000:1 leverage ratios . Apparently it's pretty normal to find 200:1 - 500:1, although in the United States it's limited (since 2010) to 50:1 and my own broker caps the non-exotics at 40:1. I would posit these points, and my question is whether or not I'm correct: Much of the "deep liquidity" in the FX market is vapor. There is not nearly enough capital reserves at the brokers, many of whom seem to be like bucket shops, to carry big position moves. Ala numerous firms like FXCM in January of 2015. That the overall FX market, if you can call it that, is grossly artificial. The volume and activity is literally hundreds of times overstated. I understand margin, but the genuine and respected markets force capital requirements and margin calls, and will force-ably close out positions to ensure that commitments can be met. I've seen numbers stating that highly leveraged retail traders, primarily in Asia and the UK, are ~20% of the FX volume. I find it impossible to imagine that the market isn't heavily distorted if that much speculative volume simply wouldn't exist if it wasn't for non-capitalized speculation.