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Risk appetite Is the general level of risk that a trader can handle.

It is a gauge of how “risk hungry” traders are.

If risk sentiment is up and times are good, risk appetite grows and traders are more willing to buy higher-yielding and/or potentially more volatile assets.

Risk Appetite

In the financial market, this normally means that traders are more willing to buy equities, commodities. crypto, and currencies that have higher interest rates.

When traders’ risk appetites are low, the market is considered “risk averse“.

In forex, risk aversion refers to when traders unload their positions in higher-yielding currencies and move their capital in favor of safe-haven currencies.

This normally happens in times of uncertainty and high volatility, a so-called “risk off” environment.

In turn, periods of perceived high-risk appetite encourage traders to take on risk, creating a “risk on” environment.