Market Risk Management 101: Types of Market Risks and How to Manage Them

Market Risk Management 101: Types of Market Risks and How to Manage Them

Last year, Britain opted to leave the European Union – and that created spiking fluctuation and acute market uncertainty across the globe.

Most of the investors out there know investment involves risks and rewards, just like head and tail in a coin and so do the analysts. Higher the risk, better are the chances to gain potential rewards. As a result, it is critical for both an investor and analyst to understand the true nature of market risks that influences the market conditions and controls the shooting volatility and the ways to manage those risks.

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Common Market Risks

Relevant market risks depend largely on the nature of investment as well as geographic boundaries. Some of the key market risks are as follows:

  • Interest Rate Risk – It is the risk of a decrease in the value of a security owing to changes in interest rates. The rate of change of interest rates is inversely proportional to bonds – based on a rationale that a bond is the future security of a healthy stream of payments – hence as interest rate rises, the price of the issued bonds decreases.


  • Inflation Risk – It relates to the risk that gets affected as the prices of goods and services increases reducing the value of money. This risk results in affecting the value of investments in a negative way. It decreases the purchasing power of money, thereby reducing the value of investment. Sometimes inflation risk is also known as Purchasing Power Risk.
  • Currency Risk – This type of risk arises when your money needs to be converted to a different currency for investment purposes. Here, a small change in exchange rates between the home currency and US dollars can affect your investment return.
  • Liquidity Risk – It refers to the risk of not being able to fulfill certain investment requirements quickly for a price that determines the true value of the asset. Sometimes, one may face difficulties in selling the investment due to a lack of buyers, resulting in a drastic decrease of investment value of that product until someone is ready to pay for it. Foreign investments, over-the-counter markets and small-capitalization stocks are some of the high liquidity risks items.
  • Sociopolitical Risk – The socio-political environ, such as war, terrorist attack, election and corruption affects the market conditions. They affect investor perceptions, resulting in severe oscillation in stock prices.

Managing Market Risk

Well, you can’t control the market risks from taking a front seat in your financial life, though you can take some steps to manage and mitigate them.


As globalization seeped through all leading economies and market segments, a majority of fintech institutions started realizing the criticality of an enhanced operational risk, especially related to cyber-security, IT failures and data theft. Amid this, cyber risks and data theft issues posed key challenges, followed by IT failures and outsourcing issues. The revolution of digitization did many goods to our society, but the moment banks got dependent on single computer networking setups, the vulnerability of confidential customer data leakage multiplied. As a result, the need for data analysts and market researchers spiked up – they are the trained souls who possess both the experience and expertise to tackle diverse investment portfolios for clients in the best way possible to fetch maximum profits.

For that, affluent market risk courses in Delhi are available around – train your mind well, before taking the big leap in the big field of data analytics. Once you are done, reach DexLab Analytics – their comprehensive Market Risk Modelling using SAS courses are top-of-the-line courses in the industry at present.

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November 30, 2017 9:26 am Published by , , , , ,

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