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  3. Market Risk

Market Risk

Market risk is the possibility of loss caused by adverse changes in prices, rates, volatility, correlations, or other broad market conditions.

Defined termReviewed 16 July 2026

Related terms

DiversificationExposureRisk ManagementVolatilityAsset AllocationAsset Class

Educational risk notice

This material is general education, not personal investment advice or a promise of results. Markets can move beyond planned levels, and losses can exceed expectations when leverage, liquidity, gaps, or operational failures are involved.

Read the full risk disclosure
Trading glossaryReviewed 16 July 2026

Definition

Market risk is the possibility of loss caused by adverse changes in prices, rates, volatility, correlations, or other broad market conditions.

In market context

The risk affects both individual positions and portfolios, and it can be amplified by leverage, concentration, or illiquidity. Diversification can reduce instrument-specific exposure but cannot remove a market-wide decline, while hedges may be incomplete or costly. Scenario analysis and position limits can help manage market risk, yet unexpected gaps and changing relationships mean realized losses can materially exceed historical estimates.

Source

Use the primary source for fuller regulatory or market context.

FINRA — Managing Investment Risk

Educational risk notice

This material is general education, not personal investment advice or a promise of results. Markets can move beyond planned levels, and losses can exceed expectations when leverage, liquidity, gaps, or operational failures are involved.

Read the full risk disclosure

Related glossary terms

Selected from explicit term relationships and shared tags.

beginner3 min

Diversification

Diversification spreads exposure across investments or risk drivers so that one adverse event is less likely to dominate the entire portfolio.

portfolio · riskRead guide
beginner3 min

Exposure

Exposure is the amount and direction of economic sensitivity an account has to an instrument, asset class, currency, issuer, or risk factor.

risk · portfolioRead guide
beginner3 min

Risk Management

Risk management is the structured process of identifying, measuring, limiting, monitoring, and reviewing exposures that could impair a trade, portfolio, or account.

risk · strategyRead guide
beginner3 min

Volatility

Volatility describes the magnitude and frequency of price changes over a period, measured historically or inferred from market prices under a stated method.

risk · marketsRead guide