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.