Market riskMarket risk
is the risk that the value of your investment will decrease due to moves in market factors. The four standard market risk factors include:
- Equity risk, or the risk that stock prices will change.
- Interest rate risk, or the risk that interest rates will change.
- Currency risk, or the risk that foreign exchange rates will change.
- Commodity risk, or the risk that commodity prices (i.e. grains, metals, etc.) will change.
Sometimes, a fifth risk factors is also considered:
- Equity index risk, or the risk that stock or other index prices will change adversely.
Market risk is typically measured using a Value at Risk
methodology. Market risk can also be contrasted with Specific risk which measures the risk of a decrease in one's investment due to a change in a specific industry or sector, as opposed to a market-wide move.
Other types of risk include: Credit risk, Liquidity risk, Operational risk, Legal risk.