Unit 1 · Level 3 · Risk-on / risk-off
Unit review: the mood ring
Markets swing between risk-on (stocks, EM, crypto rally) and risk-off (bonds, dollar, gold catch the bid). The VIX prices expected turbulence: around 15-20 normally, near 80 in true panics. And the fine print: in deep crises correlations spike toward one, and even havens can leak. Regime first, opinions second.
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What you get asked
Review round: match the concept to its meaning
Four ideas, one skill: recognising which mood the market is in before you act on any single headline.
A headline reads 'risk-off tone in markets today.' You'd expect:
Risk-off means the herd moves from reward-seeking to shelter-seeking: risky assets sold, quality bonds and havens bought.
The VIX is nicknamed the market's ___ gauge.
It rises when traders pay up for protection, a real-money measure of fear. It says nothing about direction, though.
Diversification's honest limit is that in deep panics…
2008 proved it: stocks, property, commodities and corporate bonds all fell together. Diversify anyway, just for the normal times, not the panics.
The safest mental model for safe havens:
Havens improve your odds in a panic; they don't eliminate risk. March 2020 and 2022 both showed the leaks. Respect the shelter, check the roof. 🐜
The rest of this unit
Markets have two moods. Learn what rallies, what hides, and how fast the switch flips.