Political and economic risk can play a significant role in how you trade within the spot forex market. Elections are taking place constantly throughout the world. Economic and political factors can alter the investment landscape within a specific country, which can generate risk for forex traders.
During elections there can be moments of political instability and uncertainty within a country, which usually leads to greater volatility in the country’s exchange rate. As a rule of thumb, you should keep a close eye on pre-election polling so that you will not be surprised with the voting results.
When a change in government takes place within a country the ideology of the residents of the country may also change due to the new political environment. Changes in political parties can shift the new government’s approach to monetary and fiscal policy.
When unexpected elections take place within a country, additional uncertainties can arise. Unexpected elections can arise from various instances such as a vote of non-confidence, corruption or scandals. Usually, unplanned elections can be very problematic and increase the volatility of a country’s currency. In addition, unexpected elections can trigger other events such as protests or labor strikes. It is extremely difficult for you to anticipate these events, however the more cognizant you are regarding the political affairs within a country, the easier it will be for you to react to sudden changes.
Making use of an economic calendar will allow you to track when important scheduled news events are going to take place so that you can better plan and strategize your trades. In addition, most forex brokers offer their trading partners live streaming news. You should be monitoring current events and news which may impact your trading positions.