What is the meaning of risk off and risk on in commodity market ?
Along with stocks, commodities are also preferred by large number of traders for the purpose of trading. Having commodities as a part of portfolio along with stocks has several benefits. The two popular exchange of Indian commodity market are : MCX and NCDEX. As commodities are of highly price volatile nature to ensure good trade results, mcx tips of precise nature are often considered by traders. Participants of commodity market are well aware of the fact that risk on and risk off events may have significant effect on prices of different commodities .
At times when market conditions are normal the aim of all market participants is to maximize the amount of available capital at their end. Traders , investors and other participants use certain fundamental and technical factors to predict whether the price will appreciate or depreciate. Once they conclude about direction of price movement they start buying/selling in market. In order to earn high returns traders also tend to trade using high leveraged instruments like etfs , options, futures and more. During risk on period leverage increases in market as most of the participants believes risk prevailing in market is less. This high liquidity during risk on period increases trading volumes also it becomes easy to buy and sell as more number of participants exists.
Risk off is also know as risk aversion and is just opposite to risk on.There are times when market tends to follow a particular directions because of some particular market conditions or external events. During risk off period negative sentiments prevails in market. Commodity market becomes highly volatile here as commodities tends to have high variance levels than bonds, equities and currencies. On the other hand in risk on period commodities have high standard deviation. Often various financial institution has to spend a lot of time to understand market risk and prepare for risk off events. Individual participants of market should also have a well planned trading strategy to protect their portfolio from the adverse effect of risk off events.
It can be concluded by saying that risk on environment is made by combinations of good corporate earnings and positive economy. Traders here believe that market is supported by strong fundamentals and risk in market is less. And risk off environment is made by low corporate earnings, bad economic conditions and more. To be on the safer side and earn well at different market conditions traders can rely on usage of financial advisory services like mcx trading tips . As market experts with very good knowledge depicts with such suggestions chances of earning desired returns increases. Though extra cost is involved to get such suggestions but it helps in improving trade results.