Political Arbitrage Activity

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DEFINITION of 'Political Arbitrage Activity'

An arbitrage activity that involves trading securities based on knowledge of potential future political activity. It may be country-specific or region-specific, depending on the type of political activity envisaged. Impending government elections in a given country may prompt political arbitrage specific to that nation, while the threat of a war that could encompass a number of countries may trigger political arbitrage across the entire region.

BREAKING DOWN 'Political Arbitrage Activity'

For example, if recent elections are likely to lead to the formation of a government that is not business friendly, a trader may short the benchmark equity index of that country in anticipation of a steep decline. As another example, if there is a distinct possibility of an imminent conflict in the Middle East, an arbitrageur or trader may short stocks of oil companies based in that region and initiate long positions on North American oil companies.

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RELATED FAQS
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    The goals of covered interest arbitrage include enabling investors to trade volatile currency pairs without risk as well ... Read Full Answer >>
  3. How reliable is the Fibonacci retracement in predicting stock behavior?

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  4. How can a swing trader use a Fibonacci retracement?

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