A1 Trading Company

Fundamental analysis guide

Geopolitical Events

Geopolitical risks are factors that can affect the way nations interact with each other. In turn, this can affect trade and the relationship between one country and another or several others. Whether it be the US and China Trade War, the 2020 pandemic, the conflicts between Russia and Ukraine, and more. These sorts of conflicts influence market sentiment or even a nation’s GDP. Depending on the type of conflict, certain markets can either suffer or prosper.

Ways of Measuring Risk

There are indications that lead to geopolitical crises as well as ways to look out for them.

One method investors use are fear or risk gauges. These tools usually scrape words from press releases, news stations, google searches, etc. that indicate risk in a market. Those words are then quantified for the number of times they are mentioned, and plotted on a chart. A spike in these numbers can indicate risk averse trading or investing.
Figure 1: Geopolitical Risk
Another method does not require the hand of statisticians, but rather volatility measurements. There are some indices out there that traders can access to either gauge market fear or greed in any scenario. The VIX (CBOE Volatility Index) is a helpful tool traders can use to buy or sell on the open market. When the VIX rises, it tends to indicate higher stock market volatility to the downside. The spikes tend to be short term and harsh, so not everyone trades this. Instead, they look at what the VIX is doing to determine if they should be buying or selling stocks, commodities or currency pairs.
Figure 2: The CBOE VIX Index

Impact of Risk on Markets

Higher measurements of risk are not always bearish for every market. It tends to vary on what happened and who it happened to. For instance, when Russia invaded Ukraine, oil supply lines on the border were shut down due to military interactions. This caused oil and the Canadian dollar to skyrocket in 2022 as tensions grew. All while most risk-on pairs went through year-long downtrends.

Risk indices like the VIX saw multiple spikes throughout this same time period while the S&P lost as much as 25% of its value from January 3rd and ended the year 18% below the start of the year.

Geopolitical Events Key Takeaways

Geopolitical risks are factors that can affect the way nations interact with each other
News sources, press releases, internet searches, usually track geopolitical tensions worldwide
A few ways to measure risk are through statistical research and volatility gauges
The impact can positively or negatively affect different kinds of markets/assets traded
A1 Edgefinder

All-in-One Fundamental Dashboard

Using powerful market data such as COT, retail sentiment, and seasonality, the EdgeFinder's top setups page will automatically build a list of the top buys and top sells.

EXPLORE MORE FEATURES

Keep Learning Fundamental Analysis!

Up Next...
  • Fundamental Analysis
    Economic Indicators
    We look at GDP growth, inflation, unemployment, interest rates

    go to course

    FUNDAMENTAL ANALYSIS
    Monetary Policy / Tracking Central Banks
    Tracking what the federal banks do and plan to do is essential in a currency’s strength

    go to course

    FUNDAMENTAL ANALYSIS
    Retail Sentiment vs Smart Money
    Sentiment analysis is fundamental in trading analytics. Most investors look to others to see what they’re investing in before they start investing.

    go to course

  • FUNDAMENTAL ANALYSIS
    Geopolitical Events
    Geopolitical risks are factors that can affect the way nations interact with each other. These sorts of conflicts influence market sentiment or even a nation’s GDP. Depending on the type of conflict, certain markets can either suffer or prosper.

    go to course

    FUNDAMENTAL ANALYSIS
    Seasonality Trends
    Identifying historical “tendencies” in markets

    go to course

Home
Edgefinder
Signals
There is a significant degree of risk involved in trading securities. With respect to foreign exchange trading, there is considerable risk exposure, including but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or currency pair. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you can afford to take the high risk of losing your money.
homesmartphonelaptop-phonemenumenu-circle linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram