Risk Aversion Forex Trading

Risk aversion forex trading

Definition

Risk aversion refers to when traders unload their positions in higher-yielding assets and move their funds in favor of safe-haven currencies. This normally happens in times of uncertainty and high volatility.

Risk aversion forex trading

In the http://www.babypips.com/ forex market, currencies who have relatively higher interest rates are regarded as higher-yielding currencies. These are seen as “riskier” assets. Thus, in times of risk aversion, traders tend to unwind their positions in these currencies.

Risk aversion forex trading

In turn, traders end up parking their assets in less risky, “safer” currencies, like the U.S. dollar or the Japanese yen.

Risk Aversion Hits the FX Market: Trade it, or Fade it?

These currencies are regarded to be safer because of the size of their capital markets and liquidity.

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