Political Risk

Definition - What does Political Risk mean?

Political risk refers to the possibility of shifts in governmental policy affecting the investment climate. Simply put, it is the risk that a country’s government will do something that will harm investors.

Forex traders generally do not have to worry too much about a political change in another country affecting them personally because the forex market is decentralized. This means that, unlike stock investors who have shares in companies that may be seized and nationalized, currency positions cannot be targeted.

ForexDictionary explains Political Risk

That is not to say that political shifts do not affect forex traders. A shift in politics can turn a winning position into a losing one (and vice versa) because of the market reaction.

Currency traders are, however, vulnerable to changes in laws directly relating to forex trading, such as taxes on gains and leverage limits - although the latter can be circumvented by opening accounts abroad.

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