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Video: Should China, Brexit, G7, BoJ Risks Keep Me Sidelined?

Video: Should China, Brexit, G7, BoJ Risks Keep Me Sidelined?

Talking Points:

  • There is always fundamental risk to take account for, but only certain threats should keep us out of the market
  • Discreet risk has clear timing and/or obvious scenarios while vague risk can lack for both
  • We look at these principles of absentia versus participation with regards to 'risk', Brexit, EM, the G-7 and China

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There is always risk and uncertainty in the markets, but does that mean we should keep to the sidelines until it passes? A common question posed lately is whether a distinct or vague fundamental concern should lead traders to cut exposure or remain on the sidelines if not already in the markets. There are a few considerations that need to be taken into account before that decision should be made.

First, we should establish whether the risk is explicit or vague. In an explicit scenario, the event or data has either a clear date and/or its straightforward scenarios on the various outcomes. Alternatively, a lack of decisive timing and/or a certain obscurity of the possible outcomes constitutes vagary. The more straightforward the risk, the better we can account for and position around it. From there, we can establish what the inherent probability for outcomes seems to be and compare it to the expected impact of those various developments.

The 'probability-potential' combination can make the situation a calculable risk-reward decision. In this weekend Strategy Video, we discuss a number of the most popular risks that have traders questioning their presence in the market, including: Brexit, the G-7 meeting, China's financial difficulties, BoJ intervention and the Dollar's fundamental bearings.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.