Learn what market risk means and why broad price moves in rates, equities, currencies, or commodities can affect portfolios and businesses.
Market risk is the risk of loss caused by movements in market prices such as interest rates, equity prices, credit spreads, foreign exchange rates, or commodity prices. It is one of the most fundamental risk categories in finance.
Market risk matters because even financially healthy positions can lose value when the broader market moves against them. Investors, banks, and companies therefore measure exposure, test scenarios, and use hedges when they want to limit sensitivity to adverse price moves.
A portfolio heavily exposed to long-duration bonds can suffer losses when interest rates rise even if no issuer defaults.
A manager says, “If the assets are high quality, market risk disappears.”
Answer: No. High quality may reduce default risk, but price risk from market moves can still remain.