John Steven524 Davis

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What is risk-on vs risk-off behavior in forex?

Risk-on/risk-off (RORO) describes market sentiment shifts where investors collectively seek or avoid risk. In risk-on environments, traders buy high-yield currencies like AUD or emerging market FX, while in risk-off they flee to safe havens like USD, JPY, or CHF. Drivers include equity performance, geopolitical events, and central bank policies. For example, during global crises, USD strengthens despite weak US fundamentals, reflecting its safe-haven status. Traders track RORO through indicators like the VIX and global equity indices. Recognizing sentiment shifts helps align positions with broader flows, reducing the chance of trading against dominant risk trends.