Definition
Risk-On / Risk-Off
Risk-on and risk-off describe market regimes: in risk-on, investors buy equities and emerging assets, while in risk-off they flee to safe havens like bonds, gold and the dollar.
In a risk-on mood, global investors chase returns in equities, emerging-market bonds and high-yield currencies, often boosting Indian equities and the rupee through FII inflows. In risk-off, fear dominates and money rushes to US Treasuries, gold and the dollar.
Indian markets are sensitive to this global pendulum: risk-off triggered by geopolitics, a Fed surprise or a banking scare typically causes FII selling, rupee weakness and falling Sensex/Nifty, regardless of domestic fundamentals.
Related terms
- Carry TradeA carry trade borrows in a low-yielding currency and invests in a higher-yielding one, profiting from the interest rate differential as long as the exchange rate stays stable.
- Dollar Index (DXY)The US Dollar Index (DXY) measures the dollar's value against a basket of six major currencies, dominated by the euro, serving as a global gauge of dollar strength.
- Safe-Haven CurrencyA safe-haven currency tends to hold or gain value during global stress as investors seek security, the classic examples being the US dollar, Swiss franc and Japanese yen.
- Flight to SafetyA flight to safety is a sudden shift of capital out of risky assets and into the safest ones, such as gold, top-rated government bonds and hard currencies, during periods of fear or crisis.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.