How to Trade Forex During Geopolitical Events

20 August 2025

Geopolitical events, such as wars, major elections, and virus outbreaks, tend to profoundly shake not only the Forex market but also every other financial sector. The rising volatility during elections, conflicts, and crises leaves very little time for Forex traders to react and protect their capital. A profitable forex crisis trading requires a deep understanding of geopolitical events and their effects on currency markets. Extreme volatility reflected in major price spikes leaves many traders with excessive losses, and in this guide, we will explain which are the most important geopolitical events, how they affect currency markets, and which mistakes to avoid to stay in the business in the long run.

Understanding the Link Between Geopolitics and Forex

Financial markets, with currency markets included, are driven by major events in the world, because these events can seriously disrupt established economic relationships and impact not only companies and other big participants, but also individuals in the end. Famous examples of major geopolitical events include wars, elections, sanctions, trade wars, pandemics, and more. Forex events volatility often immediately impacts the price and causes major spikes according to perceptions of market participants. For example, when the war starts, the currencies of participating parties are immediately devalued as the economies become unstable and the demand for those currencies falls.

Why geopolitical risks increase the volatility of Forex events

When Russia invaded Ukraine currencies of those countries experienced a sharp fall as people started to flee the country and exchanged their local currencies for dollars. Whenever these major events occur, prices start to react profoundly, and traders who are caught on the wrong side of the market often can’t even exit their positions. This is why utmost attention is required when such events occur. Despite these risks, some traders tend to speculate on the markets during those events. One such example is the forex elections trading when traders try to capitalize on expectations of the public when the winner is revealed. As major participants start to adjust their positions due to upcoming elections or important geopolitical events such as tariffs and trade wars, the Forex market starts to move rapidly, often covering hundreds of pips in mere hours and days, which is much more than any retail trader can handle.

Key Political Events that Move Currencies

Let’s closely explore the most important political events that tend to move the markets much faster. Main events include elections, crises and natural disasters, wars and conflicts, sanctions, tariffs, and more.

Elections and policies

Elections such as the US elections have a profound impact on currencies. They often trigger sharp market reactions and fast price swings because leadership changes bring uncertainty regarding future economic policies. Forex elections trading is especially popular during those times, and traders carefully assess candidates’ stances on interest rates, trade, and other important economic policies. These can directly strengthen or weaken the currency.

Naturally, the most popular and important elections to watch are the US presidential elections because they cause major USD volatility. In 2016, expectations of pro-growth policies strengthened the dollar, while in 2020, political uncertainty weakened it initially. Similar patterns occur in other countries and with other currencies, and traders who love forex event trading watch those elections very carefully.

Crises and natural disasters

Crises like financial collapses, pandemics, and natural disasters disrupt economies as they tend to slow economic growth and damage investor confidence and perceptions. The most famous example is the COVID pandemic that forced humanity to home, and as a result, economic growth was greatly damaged across the globe. Events like these often lead to currency depreciation in the most affected countries, and investors start to seek safe-haven currencies in stronger economies.

Wars

International conflicts often trap traders into conducting forex trading during uncertainty, which is very risky. Wars and conflicts create a very risk-averse environment and push investors toward safe-haven currencies like the USD, JPY (Japanese Yen), and CHF (Swiss Franc). This migration of money from high-risk countries to lower-risk jurisdictions, especially from the conflict participant nations, creates very high pressure on Forex markets, and volatility skyrockets. For example, since Russian aggression against Ukraine, the Russian Ruble has experienced serious depreciation and is still experiencing shocks.

Sanctions, trade wars, and diplomacy

As a result of this major conflict initiated by Russia, Europe and the USA implemented several packages of sanctions against the Russian economy. Sanctions reshaped global capital flow by restricting trade and weakening targeted economies (Iran is also under sanctions, which greatly damaged its economy). Another prominent example is the ongoing US–China trade tensions, which were expanded to the whole world by Trump. This leads to yuan depreciation, dollar volatility, and as a result, the EURUSD has been in the uptrend for months due to a weaker dollar.

Forex Market Behavior during Geopolitical Shocks

Understanding the market behavior is critical for forex crisis trading, as higher volatility means less time to react. Major events push FX markets into higher volatility states. Sudden events like wars, political instability, or unexpected sanctions can cause markets to swing extremely fast, which can easily hit your stop loss or even move past it because of gaps. As a result, currency pairs show sharper intraday movements, which is even more apparent on lower timeframes like 1-minute and 5-minute, but it is also visible on hourly and even daily timeframes. Technical and psychological levels are also easily broken during these times of pressure, and chances are high for the price to hit stop-losses.

Safe-haven currencies

One of the clearest patterns is the capital flow toward safe-haven currencies to hedge risks. The US dollar, Japanese Yen, and Swiss franc are popular currencies because they are seen by investors as stable choices during major crises. Traders try to sell other assets and move their capital into these assets to hedge the risk. For example, during the Russia-Ukraine war, the euro weakened because Europe was reliant on Russian energy, while the USD and CHF gained more value.

Spreads and liquidity gaps

Another consequence of major political shifts that shake the markets is the immediate widening of spreads and liquidity gaps. Spreads become extremely high as a result of large price swings, which makes it very expensive to trade or exit the markets. While higher spreads make trading more expensive, the main threats come from liquidity gaps. Price gaps occur when price moves past price levels. Gaps are dangerous because they can completely pass the stop-loss orders and push traders into even greater losses. This is completely opposite to calm markets when spreads are tight and slippage is much less likely to happen.

Strategies for Trading FX During Major Events

Major events make forex markets risky, but there are many opportunities if a trader correctly spots the main trend. However, trading FX during major events without a proper understanding and well-tested strategies is a recipe for disaster. There are several popular techniques for proper forex crisis trading, like event-driven approaches, safe-haven trading, risk-off trading, fundamental analysis trading, and so on.

Short-term vs. Long-term trading

Short-term trading simply involves capturing immediate price swings after major geopolitical events become known to the public. This can include scalping or day trading during news releases. Long-term traders, on the other hand, target their methods to capture broader outcomes such as the economic impact of policy changes and prolonged conflicts. However, forex conflict trading requires high alertness and constant monitoring of the news and is very risky due to high spreads and slippages.

Forex event trading

This technique involves trading around scheduled or breaking news. Traders target news where expectations differ from actual news to profit from immediate large price swings that follow such news releases. This is also called news trading and is very risky for beginners. For example, central bank announcements of interest rates often drive short-term volatility.

Safe-haven and Risk-off trading

Safe-haven techniques include buying currencies like USD, JPY, or CHF when uncertainty rises in the markets. A risk-off environment also benefits gold and other safe-haven assets. Traders try to reduce their exposure to highly risk-sensitive currencies like AUD (Australian dollar), NZD (New Zealand Dollar), or EM (Emerging market) currencies.

Technical versus fundamental analysis during major events

During major geopolitical shocks, fundamental analysis is much superior to technicals. However, technical analysis remains useful to find key support and resistance levels where market reactions tend to occur. The best approach is, of course, a balanced approach of using fundamentals to determine direction, while technical analysis will help define the best time and places for entries and exits.

Risk Management during Forex Event Trading

Risk management is the only way to avoid losses during Forex event trading, because wild price swings make it difficult to properly control risks. Proper risk management is critical in FX in general, and it is even more important in highly volatile markets. To counter all the risks, traders often use standard Forex risk management techniques, like stop-losses, lowering leverage and lot size, and focusing on capital preservation over higher profit potential.

However, stop-loss can not always protect the trader, as the price might overshoot it if it moves too fast. This can easily happen when a major geopolitical event is developing, and the only way to manage risk is to use smaller lot sizes than usual. Without lower position sizes, gaps, spreads, and slippages can make it extremely difficult to make money. But with a lower lot size, traders can survive adverse movements before the price goes in their direction.

Best Tools for FX Political Events Trading

So, what are the best tools to manage your FX political events trading positions and techniques? First of all, the economic calendar. This calendar is free and offers a schedule for all major news events published by official government organizations. It provides information about upcoming economic indicators and forecasts with the latest results. Using the economic calendar, traders can monitor and anticipate when important events are released, like interest rates, inflation rates, employment, GDP, and so on. Apart from the economic calendar, traders often employ sentiment analysis tools to define what other traders are mostly buying or selling. Sentiment can provide important insights and could be used as a filter: when your analysis aligns with the market sentiment, your likelihood of success might be higher.

The economic calendar should be coupled with decent trading and charging platforms. Trading platforms like MetaTrader and cTrader offer all the capabilities to analyze markets and detect even the tiniest inefficiencies using a multitude of built-in indicators. Having the right mix of tools is critical when you have to make decisions fast in highly volatile markets, and those platforms are more than capable of supporting all the Forex Event Trading techniques.

Historic Context: Geopolitics and Forex Reactions

There have been numerous examples throughout recent history where major geopolitical events caused major price volatility in currency markets and in other markets as well.

Brexit and GBP fall

Starting with the Brexit event, when the referendum caused one of the largest single-day moves in GBP pairs. As a result of the UK leaving the EU, GBP plunged against USD and EUR. The event has made GBP weaker for the years to come.

Russian aggression in Ukraine

The Russia-Ukraine war started when Russia invaded Ukraine in 2022, which weakened the euro because Europe was dependent on Russian energy. USD surged as it is usually seen as a safe-haven currency during global shocks. Commodities like oil and wheat also spiked because both countries are major exporters of wheat.

Elections versus the dollar

Elections in the United States historically have made the dollar more volatile, which is caused by uncertainty of who wins and which fiscal policies might be implemented. This is especially true when candidates have very opposite visions of the USA economy.

Forex Event Trading Trading Plan Guide

The only way to stay profitable during high volatility events is to develop and follow a strict trading plan. However, trading plans designed for calm markets need to be modified to be suitable for forex trading during uncertainty. Step one is to clearly define which events you are going to trade and prepare your strategy accordingly. Since those events tend to make markets very volatile, traders need to plan for both expected and surprise outcomes to reduce emotional decision-making and make their trading as objective as possible. If you have well-defined rules to enter trade, manage risks, and exit during forex conflict trading or any other highly volatile times, then the crucial step remaining is journaling. Every successful trader contributes to a trading journal. In fact, there is no easy way around; you need to write down all your trades to analyze them later and assess your performance and the reliability of your trading strategy.

Common Mistakes to Avoid

Many beginners tend to make the same mistakes when trading FX during major events, and it is crucial to refer to this list of common mistakes, including overtrading, no risk management, and chasing volatility blindly.

Overtrading is when a trader jumps into every news flash event without prior confirmation. It generally leads to losses. The solution is to wait for confirmed entries to increase the probability of success. Risk management is one of the most important parts of Forex trading, which many beginners tend to forget. Forex trading during uncertainty without proper lot size and stop-loss orders often leads to unnecessary losses and frustration. Traders often forget to leave charts alone, as it is easy to become addicted to trading, and beginners often chase the volatility blindly. However, when forex conflict trading or speculating on other important geopolitical events, it is crucial to remember that sometimes sitting out is the smartest choice, especially when there is no high-probability setup formed.