Risk-on / Risk-off
Is the market taking on risk, or looking for shelter?
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How IBFX works out the Risk-on / Risk-off score
The score folds five asset groups into one number from 0 to 100: above 50 means money is moving into risk assets, below 50 means it is moving toward shelter. This is IBFX's own calculation, written out in full below; BabyPips and other sites pick their own components and weights, so their figures will not match.
- Each group has a series of daily percentage changes, taken from the daily candle closes on CXM's MT5.
- That day's change is compared with the same group's last 60 days: z-score = (today's value − the 60-day mean) ÷ the 60-day standard deviation. This step stops a group that swings hard, like NAS100, from drowning out a quiet one like EUR/CHF.
- Multiply the z-score by the group's weight, add the risk-on groups and subtract the shelter groups, then total it up: US and Japanese stock indices 40%, AUD/JPY 20%, Gold 15%, Japanese yen 15%, Swiss franc 10%.
- Convert to the scale: 50 plus 25 times that total, clipped at 0 and 100. If every z-score is 0, the score is exactly 50.
- A group with missing data is dropped and its weight shared out among the remaining groups, so one symbol without a candle yet does not drag the score back to the middle.
- US and Japanese stock indices: The average change across US30, SPX500, NAS100 and JPN225. Stocks rising usually goes with a healthy appetite for risk. JPN225 follows Japanese holidays of its own, so on days the broker has no candle for it the three US indices stand in.
- AUD/JPY: The pair traders reach for to gauge risk appetite: AUD tracks commodities and growth, while JPY is a shelter currency.
- Gold: Gold tends to be bought when markets are worried, so gold rising pulls the score down.
- Japanese yen: JPY strength is measured as the average of three pairs with JPY second, with the sign flipped. A stronger JPY pulls the score down.
- Swiss franc: CHF strength is measured as the average of three pairs with CHF second, with the sign flipped. A stronger CHF pulls the score down.
How to read it
- It is not a buy or sell signal. The score describes where money has moved over the past few days; it says nothing about where price goes next. Do not enter a trade just because the score is high or low.
- Watch the trend in the score, not a single day. The history bars show whether the score is creeping up or sliding down; one odd day can be news that only concerns US stocks.
- Do not read too much into a score near 50. Between 42 and 58 the groups are cancelling each other out and the market has not leaned either way.
- Pair it with the other tools: to see which currencies are strong or weak, use the currency strength tool; for the range to size a stop, see pair volatility.
Prices come from the CXMDirect-Live server. The daily candle opens at 0:00 CXM server time, so it does not line up with midnight UTC, and only closed candles are used. Gold and the stock indices each have an hour's break every day and open the week an hour later than Forex, so on the first day of the week the two groups can be slightly out of step.