What is defined as 'market risk'?

Market risk refers to the potential for financial loss resulting from changes in market prices or rates. This encompasses a wide range of factors, including fluctuations in stock prices, interest rates, currency exchange rates, and commodity prices. It is a fundamental aspect of investing and trading, as all market participants are exposed to some degree of risk due to these variable market conditions.

Understanding market risk is crucial for investors, as it can significantly impact the value of their investments. Risk management strategies, such as diversification and hedging, are often employed to mitigate market risk. By identifying and measuring this risk, investors can make more informed decisions and potentially reduce their exposure to adverse market movements.

In contrast, operational failures, currency fluctuations, and data loss are related to other forms of risk such as operational risk, currency risk, and information security risk, respectively. These are distinct risk categories that do not fall under the broader definition of market risk.