Market risk refers to the potential for investors to experience losses due to fluctuations in the overall performance of financial markets. It affects all types of investmentsówhether in equities, bonds, commodities, or currenciesóand arises from factors such as economic changes, geopolitical events, interest rate movements, or shifts in investor sentiment. Unlike company-specific risks, market risk cannot be entirely eliminated through diversification, as it impacts the broader market as a whole.

There are several types of market risk, including equity risk (price volatility in stock markets), interest rate risk (changes in bond prices due to fluctuating rates), currency risk (losses from exchange rate movements), and commodity risk (price changes in commodities like crude oil or gold). Each of these can significantly affect an investorís portfolio returns, especially during periods of high market uncertainty or economic downturns.

To manage market risk, investors often use strategies such as asset diversification, hedging with derivatives like options and futures, and maintaining an appropriate asset allocation based on their risk tolerance and investment horizon. Long-term investors may mitigate the impact of short-term market swings by adopting disciplined investing approaches such as systematic investment plans (SIPs) or periodic portfolio rebalancing.

While market risk cannot be completely avoided, understanding its sources and applying effective risk management techniques can help investors protect capital and achieve stable returns over time. Awareness of market trends, global events, and macroeconomic indicators also plays a key role in navigating market volatility and making informed investment decisions within regulatory frameworks such as those set by SEBI.