In this weeks video we explore the concept of risk on vs risk off market conditions.
We have recently seen a reduction in global growth prospects which has gradually bought a high level of uncertainty and fear across asset classes most specifically stock markets but there has also been a direct link with the currency markets.
When traders and investors are fearful, we get a RISK OFF market condition whereby they move out of riskier asset classes such as stocks and into safe havens such as the Japanese Yen, Swiss Franc and gold. These produce poor yields but are safer places to hold investments until the uncertainty dissipates.
However just prior to this period of uncertainty we had a full blown RISK ON market, with investors and traders confident in the future outlook full of confidence to invest in riskier assets i.e. stocks in return for greater yields.
RISK OFF conditions naturally lead to more erratic behaviour based on fear and uncertainty and can sometimes make trading tricky whilst a RISK ON market condition gives more predictability in movements.
Understanding what the terms mean, and what condition we are in at any one time can help you approach the markets with greater clarity on how they are likely to respond. Armed with this knowledge you can then trade accordingly or even sit on the sidelines until confidence moves back into the markets.