Political Risk
a.k.a. Geopolitical risk
The chance that elections, policy changes, unrest or conflict will hit a market or an investment.
In plain English
The chance that elections, policy changes, unrest or conflict will hit a market or an investment.
Political risk is the danger that comes from people in power, or people trying to get there. A surprise election result, a sudden tax, a coup, sanctions, a war: all of it can rip through a currency faster than any economic data.
The British pound's plunge after the 2016 Brexit vote is a famous example. Political risk is hard to model and easy to underestimate, which is why traders often cut size or widen stops ahead of big votes and referendums.
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