Type of Market Risk Explained
📉 Market Risk Explained Simply: Types, Examples & Key Concepts Market risk is not only about stock prices going down. It includes changes in interest rates, equity prices, commodity prices, volatility, credit spreads, and correlations . Ignoring these risks can lead to costly surprises. Here’s a simple explanation of the main types of market risk 👇 1️⃣ Interest Rate Risk Interest rate risk occurs when market interest rates change. Fixed-rate bonds lose value when interest rates rise, while Floating Rate Notes (FRNs) remain relatively stable because their coupons adjust with market rates. 2️⃣ Equity Price Risk Equity price risk refers to changes in stock prices. If you buy shares (long position), you gain when prices rise and lose when they fall. If you sell shares (short position), the risk works in reverse. 👉 Equity represents ownership in a company . 3️⃣ Commodity Price Risk Commodity price risk affects assets like oil, gold, and agricultural products . P...
