Risk Aversion

Risk aversion refers to when traders unload their positions in higher-yielding assets and move their capital in favor of safe-haven currencies.

This normally happens in times of uncertainty and high volatility.

In the forex market, currencies that have relatively higher interest rates are regarded as higher-yielding currencies.

These currencies are seen as “riskier” assets.

In times of risk aversion, traders tend to sell their positions in these currencies.and buy “safe-haven” currencies.

Safe haven currencies are currencies that are expected to retain or increase in value when it seems like the world is coming to an end (geopolitical stress).

The U.S. dollar (USD), along with the Japanese yen (JPY) and Swiss franc (CHF) are considered safe-haven currencies.

When there’s a lot of uncertainty in the world. there is usually a “flight to safety” to one or all of these currencies.

These currencies are regarded to be safer because of the size of their large capital markets and liquidity.

Related Terms

Risk Sentiment

Risk sentiment is a term used to describe how financial market participants (traders and investors) are behaving and feeling. What traders choose to buy or sell means balancing how much they are prepared to lose with how much they hope to earn. You can look at risk sentiment as the expression of traders’ and investors’ willingness to […]

Safe Haven Currencies

Safe haven currencies are currencies that are expected to retain or increase in value when the financial market is fearful.

Risk Off

The term “risk off” is used to describe the risk sentiment where traders and investors in the financial market reduce their exposure to risk and focus on protecting their capital. In a “risk off” environment, you’ll notice prices of safe-haven assets such as the Japanese yen and gold RISING and high-risk assets such as stocks and commodities […]

Risk Appetite

Risk appetite Is the general level of risk that a trader can handle. It is a gauge of how “risk hungry” traders are. If risk sentiment is up and times are good, risk appetite grows and traders are...

Risk On

The term “risk on” refers to the market sentiment where traders and investors in the financial market are taking on risk. In a “risk on” environment, you’ll notice prices of high-risk assets such...