Unit 1 · Level 3 · Risk-on / risk-off
The two market moods
Markets swing between two moods. On risk-on days money chases growth: stocks, high-yield ('junk') bonds, emerging markets, crypto. On risk-off days it stampedes into shelters: government bonds, the US dollar, gold, the Swiss franc. Whole asset classes move as one herd, which is why traders discuss the market's mood before any single company.
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What you get asked
'Risk-on' means investors are broadly…
Risk-on = appetite is up: money flows toward assets with higher potential reward and higher risk. Risk-off is the mirror image: the stampede toward shelter.
Match each asset to its typical regime behaviour
Labels can mislead: a 'bond' can behave like a stock if it's risky enough. What matters is where an asset sits on the risk spectrum, not what it's called.
In risk-off episodes, money tends to flow OUT of stocks and INTO government ___.
High-quality government bonds are the classic shelter: boring, liquid, and backed by a state, which is exactly what panicked money wants.
Why do assets as different as crypto, EM stocks and junk bonds often fall on the SAME day?
They share one input: how much risk investors are willing to hold. When that appetite drops, everything leaning on it drops together.
What usually flips markets from risk-on to risk-off?
The switch flips on surprises, not schedules. That is why it's fast, violent, and impossible to time precisely. Know the mood; don't pretend to predict it. 🐜
The rest of this unit
Markets have two moods. Learn what rallies, what hides, and how fast the switch flips.