There are two fundamental types of investment – the bond market and the stock market. As bonds are guaranteed by national banks and governments, they are less risky than the stock market. So, when traders want to hunt for bigger wins, they need to seek areas of bigger risk. So, their risk appetite grows, and they transfer their interest from the safe bond market to the riskier stock market. This is RISK ON.
When there is fear in the stock market and stocks decline, money is transferred into the safer bond market for investment. The basic risk appetite of traders has significantly reduced, therefore this period of the cycle is known as RISK OFF.