Risk-On and Risk-OffRORO
Risk-on describes periods when investors favour riskier assets such as stocks and crypto; risk-off describes moves toward safer assets such as government bonds.
Markets often move together as investors swing between appetite for risk and fear of it. In risk-on phases they buy stocks and riskier currencies; in risk-off phases they rush to safe assets. Recognising the regime helps explain why many assets move at once.
- Category
- Fundamentals and Macroeconomics
- Reading time
- 3 min
- Also called
- Risk appetite, Risk sentiment, Flight to quality
- Updated
Risk-on and risk-off in plain words
Risk-off episodes are periods when investors worldwide become more cautious: credit spreads widen sharply, stock markets turn volatile and reserve currencies strengthen.1
One index tracks this daily, using US and euro-area market data to measure how much risk investors are willing to take.2
When risk is off, investors dump riskier emerging-market assets and buy back safe reserve assets.3
How to read the risk regime
Watch credit spreads
Risk-off brings sharp increases in credit spreads.1
Watch equity volatility
Risk-off also means high volatility in equity markets.1
Check a composite index
Check the main inputs: credit risk, stock volatility, funding conditions, and currencies and gold.2
Track safe-haven flows
Expect even safe assets to be sold by leveraged players who need cash in a panic.3
Watch emerging markets
Watch emerging-market assets, which are often sold first.3
Adjust exposure
Rebalance rather than chase moves.
Worked examples
Example 1 — Risk-off day
Risk-offHypothetical headlines spark fear: stocks fall 3% and credit spreads widen 0.5 pp.
| Stocks | −3% |
| Credit spreads | +0.5 pp |
| Reserve currency | +1% |
Wider credit spreads, choppy stocks and a stronger dollar are classic risk-off signs.1
Example 2 — EM outflows
Flight from riskA hypothetical emerging-market fund sees $1bn of outflows in a week.
| Outflows | $1bn |
Investors pulled money out of riskier emerging-market assets.3
Example 3 — Diversified portfolio
CushionedA hypothetical 60/40 portfolio falls 4% in stocks while bonds gain 1%.
| Stocks | −4% |
| Bonds | +1% |
Safe assets can cushion a flight to quality by global investors.3
Risk-on vs risk-off
| Aspect | Risk-on | Risk-off |
|---|---|---|
| Stocks | Rise | Fall |
| Credit spreads | Narrow | Widen |
| Volatility | Low | High |
| Safe havens | Lag | Rally |
Where the concept helps
Explaining correlation
Assets move together, raising Correlation.
Hedging
Plan Hedging for risk-off shocks.
Sentiment reading
Pair with the Fear and Greed gauge.
Allocation
Advantages and disadvantages
Advantages
- Explains broad market moves simply.
- Backed by official indices.
- Highlights hidden correlations.
- Helps prepare for shocks.
Disadvantages
- Regimes are only clear in hindsight.
- Oversimplifies asset behaviour.
- Safe havens can fail at times.
- Encourages chasing short-term moves.
Going deeper
Read as far as you need. Each level builds on the one before it.
Common mistakes
Trading every headline
Regimes are noisy.
Assuming diversification always works
Correlations rise in risk-off.
Ignoring credit markets
Spreads often lead stocks.
Treating labels as forecasts
They describe, not predict.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Risk-on means appetite for risky assets.
- Risk-off means flight to safety.
- Credit spreads and volatility jump in risk-off.
- Official indices track risk appetite.
- Diversify ahead of time rather than react.
Frequently asked questions
Is gold a risk-off asset?
Can I predict regime shifts?
Why do emerging markets suffer in risk-off?
Further learning
- Credit Spread
A key risk-off signal.
- Volatility
How fear shows in prices.
- Correlation
Why assets move together.
- Hedging
Protecting against risk-off.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Board of Governors of the Federal Reserve System. The Transmission of Global Risk (FEDS Notes, 2023) (opens in a new tab) Checked .
- Federal Reserve Bank of Kansas City. Risk-On Risk-Off Index (opens in a new tab) Checked .
- Bank for International Settlements (BIS). Risk-on/risk-off, capital flows, leverage and safe assets (Working Paper 382) (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.