What Is Geopolitical Risk?
Geopolitical Risk: A risk that an investment could suffer as a result of political instability, political issues and unexpected developments in the country’s government.
How Do Geopolitics Affect The Forex Markets?
Investors will often invest in a country where the economy is performing well and they see opportunities. If there are slight uncertainties about the future of their investments due to a country’s unstable politics, investors are likely to look for an immediate exit. If they decide to do so, the country’s currency gets negatively impacted and starts to sell off as they move their money to other countries where they feel that their investments are safer. Even a single tweet can cause uncertainties. Not so long ago the President of the United States Of America Donald Trump sent out a tweet about trade wars and the markets got jitters and went insane within a day.
Examples Of Geopolitics
- Tensions between nations
- General elections
- Snap elections
- Natural disasters such as hurricanes, floods, earthquakes.
Why Do We As Traders Care?
Wars seems to have the most negative effect because infrastructure gets destroyed during wars and that leads to severe economic frustrations. Investors fear wars. Being an investor in the currency markets means you are also affected by all these. You do not have to admit that you are, but you are affected whether you like it or not. When GBP fell by 10% overnight during the U.K referendum, it fell for all investors including those who think that geopolitics do not matter. When the British Prime Minister Theresa May triggered the article 50, the markets got jitters and everyone got affected whether you were aware of it or not. When U.K had their snap elections GBP got impacted for all investors. When Euro fell to its 14 year low against the U.S Dollar on Brexit it did so for all investors. These are some of the events that make me to never regret my decision to trade that way that I do now because all these are never a nasty surprise to me.
A few months ago on the 6th of October 2017, the storms that hit the U.S had a greater impact on the labour market and as a result the Non-Farm Payrolls figure came out very low from what was expected. The forecast was 82K and the actual figure was -33K. It was all because of a natural disaster.
In closing, if you have invested in Forex, beware that there are geopolitical events that can affect your trading. Currencies like U.S Dollar because Trump is always busy, also EUR and GBP due to Brexit . Thank you for stopping by.
What is OPEC?
In the past week I have mentioned OPEC a lot on my social media posts. I have been getting messages from individuals who are keen to understand more about OPEC . I then decided to put up this blog post hoping to simplify it for anyone who is interested to know. As currency traders, it benefits us to understand the markets.
What does OPEC stand for?
OPEC stands for Organization of the Petroleum Exporting Countries. This organization comprises of 14 nations and it was founded in 1960. There are some other countries which are non OPEC members (Canada is one of them). It’s Head Quarters are in Vienna where they usually hold their conferences/meetings.
What is their mission?
- To unify the petroleum policies of it’s member countries
- To stabilize oil markets
- To regulate the supply to consumers by ensuring that there are no oil shortages.
Why does OPEC hold conferences/meetings?
They do so to discuss the oil production output. They meet up to discuss among other things the barrels of oil that they want to produce per day. The latest OPEC meeting which was the 174th meeting, was held in Vienna on the 22nd of June. Congo was also approved with immediate effect as a member of OPEC. They also mentioned that the oil market has improved over the past 6 months. They came into an agreement to increase crude oil production by 1 million B/D (barrels per day) on paper. The markets didn’t really think it was enough though. The markets thought it was oversold. The oil ministers also acknowledged that not all members will be in a position to increase the barrel production right away. It might be a bit difficult for Iran since it was hit by the U.S sanctions that has hindered it’s energy exports. In actual fact, the increase will be around 600 000 B/D.
What actually happens when they pump more barrels of oil per day?
Major oil producers decide to pump more oil to prevent shortages in supply. The president of the United States Of America, Donald Trump has been publicly expressing his support for more output in his recent tweets and he definitely welcomed the deal to pump more barrels.
How does increasing the oil output affect the oil price?
Producing more barrels of oil helps in reducing the price. In short, increased oil production=less oil price and decreased oil production= higher oil price. If OPEC can decide to decrease the oil production, definitely the oil price will rise higher. With the higher Crude oil price comes a higher fuel price, higher food prices and a lot more. I hope I have managed to at least break it down in a more simpler way like I always try. Thank you for stopping by. Kindly share this post using the share buttons below.