Market Risk

Market risk, sometimes called systematic risk, comes from factors that affect many assets at once: interest rate changes, economic cycles, currency movements and shifts in overall investor sentiment. Because these forces act across whole markets, market risk cannot be removed simply by picking different individual securities within the same market. This distinguishes it from company-specific risk, which relates to the fortunes of a single issuer. Understanding which portion of your portfolio's movement comes from the market itself helps you set realistic expectations about how it may behave in a downturn.

Investors face several risk types that are easy to confuse. Company-specific risk relates to one issuer and can be reduced through diversification across many holdings. Liquidity risk concerns whether you can sell at a fair price when you want to. Currency risk arises when investments are denominated in a different currency from your own. Market risk sits on top of all of these: even a diversified, liquid portfolio in your home currency can fall when the market as a whole declines. Separating these categories helps you match each risk to a suitable response instead of treating all volatility the same way.

Careful investors approach market risk with a review process rather than a prediction. Start by clarifying your time horizon and how much of a temporary decline you could tolerate without being forced to sell. Then look at how concentrated your holdings are in a single market, sector or asset class. If you use leveraged products, understand that market moves are amplified and review the terms that govern your positions. For definitions of the terms used here, see the Glossary (/glossary). To continue with related topics, visit the Education hub (/education), or use Find my broker (/find-my-broker) to structure your account research around questions like these.