A risk-on sentiment indicates a positive mood that traders have about the market. Investors are optimistic and interested in taking more risks in investing their money. They like to invest in assets that give them a higher yield. This includes assets like stocks, commodities, and high-beta currencies like the Canadian dollar, New Zealand dollar, etc. This results in appreciation of currencies associated with higher risk and higher yields. You can benefit from the risk-on market sentiment by holding long positions in such currencies.
A risk-off sentiment indicates a negative mood of investors. This indicates uncertainty in the markets, and traders are feeling worried. This causes the investments to flow out of the risky assets and towards the safe haven assets.
During the times of the global financial crisis, the Japanese yen and the Swiss franc are considered as safe haven assets. So, you can focus on investing in high-beta currencies when the market is dominated by a risk-on sentiment. When the market is dominated by a risk-off sentiment, then you can invest your funds in safe haven currencies.
If you have any questions on the risk-off and risk-on moods in the Forex market, you can ask them on our forum.
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