It is the possibility of investor’s losses in position due to change in market price. Factors such as political turmoil, recession, natural disaster, change in interest rates and terrorist attacks affect the overall enactment of financial market in which investors and traders are involved. The market risk is also called systematic risk which only can be hedged in some way but cannot be removed through modification. An unsystematic risk can be reduced through diversification but can’t apply on market or systematic risk.
There is no unique classification of market risk, the most common types include interest rate risk, currency risk, equity risk and commodity risk.
Interest rate risk – it involves interest rate fluctuation due to change in monetary policy and central bank announcements. The interest rate risk is more applicable to savings in fixed income securities such as bonds.
Equity risk – it covers to change in price of stock indices or stock. Such change is price of equity involve market risk to the investor.
Commodity risk – in cover the change in prices of commodities such as crude oil. Recent change in price of crude oil due to corona virus pandemic has badly affect the investors.
Currency risk – it cover the change in foreign exchange rate, or change in price of one currency to another. The international investor and traders holding the other national currency (EUR/USD, GBP/USD etc.) are subject to currency risk.