Risk-Off
Risk-off describes markets where investors flee to safety, strengthening the dollar, yen and franc and pressuring riskier currencies.
Risk-off is a market mood where investors flee to safety: equities down, havens like USD, JPY and CHF strong, and riskier currencies weak.
Risk-off describes a market mood where investors cut risk: equities fall, investors rotate into safe havens, and high-yield and commodity currencies weaken. It is driven by shocks: growth scares, geopolitical events, credit stress or surprise policy moves. In forex the risk-off trade is long USD, JPY and CHF against AUD, NZD, CAD and emerging market currencies.
How It Works
- Triggered by shocks: growth scares, geopolitics, credit stress
- Safe havens outperform, high-beta currencies underperform
- Can be a one-day spike or a multi-week regime
Trading Tips
Risk-off unwinds carry trades fast - the long AUD/JPY crowd exits together
The dollar can rise in risk-off even when US data is soft, because it is the world's haven
Do not fight a risk-off regime with fresh longs in commodity currencies
Risk-Off Example
Say a major bank fails Friday afternoon. Stocks drop 4% into the close, USD/JPY collapses 300 pips, gold spikes, and crypto falls with equities instead of hedging them. Textbook risk-off: everything risky for sale, havens bid.
How Traders Use Risk-Off
Cut size first and ask questions later when risk-off hits: the first move is rarely the last. Hold havens, kill leverage, and never catch the falling knife before lunch Monday. Cash through the weekend is a position.
Related Terms
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