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Risk and performance

Risk on, risk off:when markets move as one.

Risk on and risk off are shorthand for markets moving together as investors' appetite for risk changes. In a risk-on phase, stock indices and growth-linked currencies tend to rise. In a risk-off phase, money moves toward assets seen as safer, and the Japanese yen, Swiss franc and US dollar have historically tended to strengthen.

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What risk on and risk off mean

The phrases describe a regime, not a single asset. When global risk appetite rises, investors buy assets whose returns depend on growth and accept more volatility; when it falls, they sell those and buy assets expected to hold their value. Because the same shift affects many markets at once, prices that normally move independently start to move together.

Research from the Bank for International Settlements links these swings to capital flows and leverage across the financial system, and Federal Reserve analysis describes how a rise in global risk aversion transmits across asset prices and exchange rates.

Which assets tend to move which way

An IMF study of risk-off episodes found a recurring pattern in currencies: the yen, the Swiss franc and the US dollar tended to appreciate against other currencies. The table below is the common textbook grouping. It is a tendency, not a rule, and each episode differs.

The usual grouping, and its caveats
Tends to rise when risk is onTends to rise when risk is offCaveat
Stock indicesGovernment bonds of major economiesBonds and stocks can fall together, for example when inflation is the worry
Growth- and commodity-linked currencies, such as AUD and NZDJPY, CHF and often USDThe dollar's role depends on whether the shock starts in the US
Emerging-market currenciesGold, oftenGold does not always rise in a sell-off

When the pattern breaks

The grouping is an average across many episodes. A shock that starts in one country can weaken that country's currency even if it is usually a safe haven, and an inflation scare can push stocks and bonds down together. Treat risk on and risk off as a question to ask about the market - what is moving together, and why - not as a map of what will happen next.

Step by step

How to identify it

Check whether a market move is part of a broader regime before reading it as a signal on one instrument.

  1. Look at a stock index, a safe-haven currency pair such as a yen cross, and gold together.
  2. Ask whether they are moving in the textbook directions for risk on or risk off.
  3. Check the news and economic calendar for the event that started it.
  4. Look at correlations across your open positions: in a regime shift, several trades can become one trade.

Worked example

The concept,walked through

A risk-off afternoon, described

An illustrative sequence in words. It is not a record of any real date or price.

  1. 1. TriggerAn unexpected headline raises fears of slower global growth.
  2. 2. MarketsStock indices fall, the Australian dollar weakens, and the yen and Swiss franc strengthen against most currencies.
  3. 3. PortfolioA trader long an index, long AUD/JPY and short USD/CHF finds all three positions losing at the same time.

Three positions that looked diversified were one bet on risk appetite. The regime did not predict the move; it explained why the positions moved together once it happened.

Common mistakes

Where tradersgo wrong

Treating the grouping as fixed

Safe havens change with the shock. The dollar, gold and bonds have each failed to rally in some sell-offs.

Counting correlated trades as separate risks

In a regime shift, positions across indices and risk-sensitive currencies can lose together.

Labelling every move

Most days are not clear risk-on or risk-off days, and forcing the label adds noise.

Limitations

What it cannottell you

No chart concept predicts price. These are the limits worth keeping in view.

  • Risk on and risk off describe how markets moved; they do not forecast when a regime starts or ends.
  • Relationships between assets change over time, and historical patterns in research are averages, not a description of what the next episode will do.

In an evaluation

Using it on asimulated account

On a simulated account the daily loss limit applies to all positions together. On a $100,000 account it is $3,000 on Instant or $5,000 on 1 Step and 2 Step, and correlated positions can reach it together in a single risk-off move.

Size each position as if the others might move with it. Risking $500 on each of three correlated trades is closer to one trade risking three times that.

Trading rule

What is the daily loss limit?

One ceiling across every position - 3% on Instant and 5% on 1 Step and 2 Step.

Trading rule

What is maximum drawdown?

The floor beneath the whole account in a sustained sell-off.

Trading rule

Can I trade the news?

Many regime shifts start on scheduled releases.

Questions

Asked aboutthis concept

A phase in which investors reduce exposure to riskier assets such as stocks and growth-linked currencies and move money toward assets seen as safer, such as major government bonds and the yen or Swiss franc.

Often, but not always. Gold has risen in many sell-offs and fallen in others, particularly when investors sold everything to raise cash.

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Sources

What this pagerelied on

  1. The Behavior of Currencies during Risk-off Episodes (Working Paper 13/8) - International Monetary Fund. Retrieved 23 September 2026. The recurring pattern in risk-off episodes: the yen, Swiss franc and US dollar tend to appreciate against other currencies.
  2. Risk-on/risk-off, capital flows, leverage and safe assets (Working Paper 382) - Bank for International Settlements. Retrieved 23 September 2026. Risk-on/risk-off as shifts in global risk appetite that move capital flows, leverage and demand for safe assets together.
  3. The Transmission of Global Risk - Board of Governors of the Federal Reserve System (FEDS Notes). Retrieved 23 September 2026. How a rise in global risk aversion transmits across asset prices and exchange rates.

Educational content only, not investment advice or a recommendation to trade. Chart concepts describe what price has done; none of them predicts what it will do, and trading any strategy can lose money. Get Funded Now accounts are simulated and trade virtual funds. Last reviewed 22 September 2026.

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