Financial risk is a phenomenon that concerns all individuals, investors, companies, institutions, governments and communities, and whose existence or possibility is of concern. Financial risk, which develops depending on more than one parameter and has an impact from the flow of daily life to investment, from commercial activities to the global order, is the possibility of losing money, capital and assets in general terms.
Regardless of the initial amount, which can be called capital, is relatively small or large, the loss of this capital as a result of financial transactions and investment defines financial risk in the broadest sense. The format may be different for individuals who invest, as well as different sizes and sub-titles for companies and organizations that take out loans and carry out commercial activities.
Financial risk and the indicator of financial risk may be different at each level. For country governments, financial risk may mean that they default by borrowing when they cannot control the monetary policy, and the consequences also affect the individuals living in the country. Likewise, companies need to manage financial risk indicators and risks that may affect them well so that they do not go into debt and bankruptcy processes.
Of course, there are financial risks for individual investors as well. The investment strategies and decisions of individual investors investing in the classical financial market or cryptocurrency market may involve or create financial risks. On the other hand, the actions taken by individuals who only manage their earnings or assets in money and asset management may contain risks.
It is always recommended that users who trade and invest in the cryptocurrency market perform the necessary examination and research within the scope of risk management principles, and make transactions in accordance with their own risk-return levels.
What are the Indicators of Financial Risk?
A risk indicator is an indicator or measure used to evaluate and measure a potential risk. A risk indicator can be thought of as an alarm with upper and lower limits and giving a warning here. Financial risk indicator is also metrics that help to measure market risk, regulatory changes or competition risk. As in this definition, the unique risk indicators of cryptocurrency markets can be market conditions, the actions of regulators to create or regulate cryptocurrency regulations, and developments specific to each crypto asset.
Good identification of risk indicators helps to manage risk. Knowing the potential risks of a market, or specifically a crypto asset or cryptocurrency market, plays an important role in deciding what action to take at which breaking point, as an investor or user, to manage the risks.
Types of Financial Risk
Market risk:
These are the risks that occur when there is a change in local and global market conditions, including the traditional financial and cryptocurrency markets.
Credit risk:
Companies and individuals can use various forms of credit. They must have sufficient funds and cash flows to enable them to make loan payments. Credit risk can be encountered as the risk of non-payment of loans.
Liquidity risk:
Liquidity is the ease with which a traditional financial product or crypto asset can be converted into cash in the desired fiat currency. Investors want to be able to buy and sell very quickly in the cryptocurrency market. Liquidity risk refers to whether companies or individual investors will be able to trade crypto assets in their daily cash flow whenever they need it.
Operational risk:
Operational risk defines the risk of failures, fraudulent activities, inability to make transactions due to user errors, and financial loss that may occur at all stages of the financial transactions of large or small organizations or individual investors.