Forex Training: Risk Appetite

by Trader Rich

Risk appetite and aversion influence currencies on the FX market
One of the most telling indicators of how currencies are likely to do on the FX market is that of risk appetite (and its opposite, risk aversion).

Risk appetite measures how confident traders feel in taking larger risks. When the economy is good, and when there is global growth, risk appetite is high. Traders feel comfortable with more volatile currencies (high yielders and emerging market currencies) and are willing to take risks in order to make bigger profits.

When risk appetite is low, risk aversion is said to be high. Traders do not wish to take risks. Instead, they put their money into safe haven currencies that are more stable. The returns aren’t as high, but during times of economic uncertainty and turmoil, the risk averse try to preserve capital.