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How Does Politics Affect Traders?

 

January 14, 2019 (Investorideas.com Newswire) Whatever your occupation may be, there is a significant advantage in following the political developments not only of your country but of the world. There may be a specific business advantage in doing so for you, or you may simply be interested in the day-to-day workings of the political stage; either way, it's a good idea to keep abreast of what's happening in politics.

If you're an online trader, you may be wondering how politics can affect your trade. After all, businesses will continue to trade and value will continue to fluctuate no matter what happens, right? Well, to a certain extent that's true, but politics affects the stock market more than you might know.


As a case study in how politics can affect traders, let's look at binary options trading. If you're not sure what binary options trading is, here's a quick primer: as a binary options trader you are effectively looking at certain assets and deciding whether their price is likely to increase or decrease over a certain period of time. Binary options trading is one of the simplest ways to trade online, and in some ways it's one of the safest.

Even though that's the case, binary options trading can still be largely subject to the whims of politics and political developments both locally and internationally. Let's take recent conflicts in the Middle East as an example. Conflict can sometimes be a strong force for positive change in the stock market as locals rally around their leadership and the prices of certain resources increase. In a similar way, national elections can be good for binary options traders since many countries utilise a two-party system, in which one option usually looks more favourable than the other to news outlets and pundits.

If you're interested in binary options trading and want to know more about brokers, plus how the process works, check out this link. For more information on how politics can affect both binary options trading and other forms of online trading, read on.

Leadership change

A leadership change is one of the most seismic events that can happen in politics on a national scale. Whether this happens due to an election, a previous leader stepping down to make way for a new one, or a scandalous resignation, there are plenty of reasons why a country's leadership might change. This can affect the stock market significantly because the new leader may have different ideas about the economy to the previous leader, even if the party in power hasn't changed. Whether or not this has a negative or positive effect often depends on the political interpretation of the outlet in question. As an example, let's say a new leader wants to tax companies more aggressively. This makes the stock market volatile, as we don't know how companies will respond; business could go down, or they could choose to relocate completely, both of which would impact the value of stocks. As an online trader, you definitely need to watch out for leadership changes.

Political event with significant impact on the economy (referendum etc)


It's not hard to think of ongoing political events which are having knock-on effects on not only the economy of the country in which they're happening, but in related countries too. The Brexit referendum, in which the UK voted to leave the EU, is having a continued effect on the country's economy; pound sterling, the British currency, is volatile right now, and many companies are worried about the effect Brexit will have on their business. As a result, shares in those companies are subject to sudden and drastic changes in value. Elsewhere, we could look at the 2007 stock market crash, which (regardless of its causes) saw many companies on the markets take major blows as wealth decreased.

Short-term and long-term effects

This isn't so much a way in which the stock market can be affected by politics as it is an examination of the differences in how this can happen. As an online trader, it pays to be aware of the difference in short-term political effects versus long-term effects. Let's say, for the sake of argument, that a British Labour government is replaced by a Conservative one. The Conservatives have long been in favour of reducing taxation and creating a more friendly environment for businesses, so it might look as though stocks are set to shoot up in value as more businesses decide to do less fettered business in the UK. However, the chancellor then later announces that the country's debts are becoming a problem, so spending will need to be curtailed. Austerity is bad for the stock market, so stocks will go down. What initially looked like a positive development politically actually became a negative one in the end. This can happen often, so stay informed.

Predictability

The key thing to remember about politics and the stock market is that political developments are incredibly difficult to predict. We can say with relative certainty whether a president will survive a certain scandal or controversial decision; we can point to precedent as an attempt to predict the future; and we can perform in-depth political analyses which give us a solid idea of where a certain political system might be headed. In the end, though, actually predicting the outcome of an election (for example) can be extremely difficult. Many political pundits believed Hillary Clinton was a sure win in the 2016 US presidential elections, only for Donald Trump to emerge the eventual victor. Similarly, analysts predicted that the UK would vote to remain in the European Union, but they were also proven wrong. Unpredictability is bad for the stock markets; traders like to know where things are going and what track their investments are on so they can make informed decisions, but politics can frustrate this easily and quickly.

These are just a few ways in which politics can affect the life of an online trader. If you stay informed about politics to as much of an extent as you can, you shouldn't suffer too much from the volatility and unpredictability that political systems can bring to an online trading environment.


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