What is market risk?

Market risk refers to the possibility of an investor experiencing losses due to factors that affect the overall performance of the financial markets. This can include changes in interest rates, currency exchange rates, equity prices, or commodity prices. Market risk is inherent in any investment and is typically measured by volatility or the likelihood of market prices moving unfavorably. Managing market risk involves identifying, analyzing, and taking steps to mitigate potential losses. Professionals in market risk roles often use quantitative methods and models to assess and manage this risk for financial institutions.