Risky assets and how to trade them in the Forex market
Assets whose value directly depends on the dynamics of the market conjuncture called risky assets on the Forex market. It means that the value of these assets may vary significantly depending on the conditions or mood in the market. Raw materials and commodity currencies (commodity currencies are currencies that have a significant dependence on the cost of raw materials) are often called risk assets on the Forex market. Also currencies under the pressure of geopolitical, political or other risk factors can be named risky currencies. For example, the British pound was in the group of risky currencies due to Brexit and the associated consequences.
In contrast to risky assets, there are safe haven assets or safe assets. That can serve as a stable support for investors. The demand for safe assets grows when there is a growth in risks and the flight of investors from risks, from risky assets, to the market.
Risk currencies are commodity currencies such as Canadian dollar (CAD), Australian dollar (AUD) and New Zealand dollar (NZD). The British pound (GBP) can also be attributed to this group with some reservation on the situation with Brexit.
If you pay attention to non-major currencies, then virtually all currencies in the emerging market are risky assets that are under pressure, depending on various fundamental factors. But do not forget that against the background of fundamental risks: political, geopolitical, technological, military and other factors, any currency can be a risky asset. Under normal conditions, commodity currencies are called risky assets due to the ambiguous and non-constant dynamics of the cost of raw materials.
How to trade risky assets
When risks increased risky assets get under pressure first of all and are actively selling. The main indicator of global market sentiment are stock exchanges and indices. Decrease or collapse, which indicates an increase in risk and the sale of risky currencies.
An example of selling and buying risky currencies in the change of sentiment can be shown on the dynamics of the currency pairs AUD/USD (Japanese candlesticks), NZD/USD (bars) and the Australian stock index S&P/ASX 200 (blue line).
The graph shows an example of inverse correlation of risk currencies and an index, where the index is a leading factor. Growth and decline in risky assets directly depend on market sentiment, as against the background of growing optimism, risky assets are strengthening, and on pessimism – are falling.
Anton Hanzenko