Trading in a Geopolitical Crisis

(republished with addendum added)_

Geopolitical markets are generally difficult to trade as there is often a short shelf life before whatever crisis is dominating is diffused. This suggests going with the flow while the market is on high alert but be aware that the factors driving it can fade quickly.

While the current Israel-Gaza conflict is still in its early stages, with a risk that it could widen, markets appeared to shrug it off after an initial run for cover. Instead, the focus turned to US interest rates with some less hawkish talk by Fed officials sent bond yields lower, stocks higher, and the dollar in retreat.

Nevertheless, it is worth paying attention to trading in a politically driven market as a headline at any time could see markets run for cover.

Trading during a geopolitical crisis

Trading during a geopolitical crisis can be highly risky due to increased uncertainty and volatility in financial markets. It’s essential to exercise caution and consider the following:

1. Stay Informed: Monitor news and geopolitical developments closely to understand the evolving situation.
2. Risk Management: Use stop-loss orders to limit potential losses and diversify your portfolio to spread risk.
3. Safe Havens: Some assets like gold, the Swiss Franc, and U.S. Treasuries may act as safe havens during crises.
4. Volatility: Be prepared for increased market volatility and consider trading smaller positions.
5. Expert Advice: Consult with financial professionals or advisors who specialize in crisis management.
6. Long-Term Perspective: Consider the long-term impact of geopolitical events on your investments rather than making impulsive decisions.

Remember that trading during a crisis is not for the faint-hearted and can lead to significant losses. It’s crucial to assess your risk tolerance and make informed decisions.

Addendum: April 19, 2024

When a geopolitical crisis starts, markets generally assume the worst and reassess later. With the worst case scenario often factored in, the news tends to have less of an impact until it almost becomes background noise.

This is often the case until/unless there is an escalation of the crisis that forces markets to reassess the impact.

Most recent examples are the ongoing war in the Ukraine and the Israel-Gaza conflict which are still in the headlines but not the focus of trading.

The current Israel-Iran crisis, which saw markets run for cover after an Israel attack on Iran facilities overnight, has so far not followed. Cooler heads prevailed after Iran played down the attack and indicated there would be no further retaliation. This is an example of markets initially assuming the worst and then reassessing the impact afterward.

‘Jay Meisler Creator and Head of the Global-view.com