Risk-On / Risk-Off Explained - Forex Trading Strategy Q&A | Forex
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Need help becoming profitable? Watch this interview, where Jarratt reveals THE EDGE, which got him #2 ranking: http://www.jarrattdavis.com/forex-course Risk-On / Risk-Off is a concept that I talk about a lot but not many retail traders cater into their trades, perhaps it’s a concept that not many have heard of and even fewer understand. We have to understand when considering the concept of Risk-On / Risk-Off that the market is in a constant cycle between those two dispositions. To explain a risk off market simply put is where traders don’t want to take any risk, they are panicking, scared and worried, essentially something is happening i.e. the market is crashing and they don’t want to be in the market. Subsequently they will dump any high yield/high risk currencies and flee to low risk low/low yield currencies such as JPY. The reason for this is that the JPY and other similar currencies that are low yield and therefore low risk are stable on account of it being low yield the interest is practically0.0% as an advantage to that though this does make them a far more secure bet when the markets are overly volatile. Traders will flee to them as a good place to store their capital while the market is crashing/turbulent as it is very unlikely that anything is going to happen to such a low yield currency as the lower the yield the more secure a currency is. Risk On is the opposite; this is when there is nothing concerning the market, traders are confident looking for high yield currencies to make the most profit they can in the shortest time possible. Such as the GBP, NZD and AUD; basically you can judge a risk on risk off currency by its interest rate. Lower interest currencies are typically risk off whilst higher interest currencies are typically risk on. To demonstrate my point it is in a way similar to fear and greed with risk off representing fear and risk on representing greed respectively. I make use of this concept by essentially trading the news and using fundamental analysis, the news will tell you whether the market is risk on or risk off. Therefore if its risk off you want to flee to safe haven currencies such as the JPY if however if its risk on you’re going to want to look at investing in higher yield currencies and reap the rewards associated with those currencies.
Comments
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Hi Jarret, thanks a lot for these videos. One thing baffled me today. We are in a clear risk on period but EURUSD had a bullish run with EUR being at 0% and USD being 0.5%. What are your thoughts?
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Straightforward, clear, excellent. thanks! I just have a question, what are you talking about when you speak about yields ? treasury bonds (if it is the case which one) ? or central banks interest rates ? sorry for this very newb question, bye
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was this video recorded in Cyprus?
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Jarratt Davis Forex Trader Correct me if I wrong Jarrett, the traders that flees to save haven instruments like the Yen during risk off are usually traders that does not trade with leverage, perhaps mostly institutional traders? The reason I ask that, is because if we as retail traders buy the yen, the are still taking on risk with leverage account, therefore if the market goes against us it's hard to ride out the volatility. So for me (retail traders) we are always risk on. It does not make it easier for us to flee to risk off currencies.
Due to Japanese QE, I have hard time buying the yen pairs even though I can spot technical set ups. I am tripping over the psychology of, any time the yen pairs can get weak and the QE affect (the fundamentals) can push the yen pairs back up and even make new high. I would highly appreciate if you can address these two issues, have a good day sir. -
Hey Jarratt, exellent video, could you make one on Which are, in your view, the most relevant economic indicators? the ones that really move markets?
GDP, Interest Rates, Unemployment, PCI, etc
Thanks! -
In this video I will be discussing the Risk On/Risk Off concept; Risk On/Risk Off is a concept that I talk about a lot but not many retail traders cater into their trades, perhaps it’s a concept that not many have heard of and even fewer understand. We have to understand when considering the concept of Risk On / Risk Off that the market is in a constant cycle between those two dispositions.
To explain a risk off market simply put is where traders don’t want to take any risk, they are panicking, scared and worried, essentially something is happening i.e. the market is crashing and they don’t want to be in the market. Subsequently they will dump any high yield/high risk currencies and flee to low risk low/low yield currencies such as JPY.
The reason for this is that the JPY and other similar currencies that are low yield and therefore low risk are stable on account of it being low yield the interest is practically0.0% as an advantage to that though this does make them a far more secure bet when the markets are overly volatile. Traders will flee to them as a good place to store their capital while the market is crashing/turbulent as it is very unlikely that anything is going to happen to such a low yield currency as the lower the yield the more secure a currency is.
Risk On is the opposite; this is when there is nothing concerning the market, traders are confident looking for high yield currencies to make the most profit they can in the shortest time possible. Such as the GBP, NZD and AUD; basically you can judge a risk on risk off currency by its interest rate. Lower interest currencies are typically risk off whilst higher interest currencies are typically risk on. To demonstrate my point it is in a way similar to fear and greed with risk off representing fear and risk on representing greed respectively.
I make use of this concept by essentially trading the news and using fundamental analysis, the news will tell you whether the market is risk on or risk off. Therefore if its risk off you want to flee to safe haven currencies such as the JPY if however if its risk on you’re going to want to look at investing in higher yield currencies and reap the rewards associated with those currencies.