Which risk focuses on trading positions affected by market price movements?

The focus of the question is on understanding the type of risk that arises from changes in market prices affecting trading positions. Market risk is specifically defined as the risk of losses in financial instruments due to fluctuations in market prices. This can include changes in stock prices, interest rates, foreign exchange rates, and commodity prices, among other factors.

Traders and investors are primarily concerned with market risk because their gains or losses can vary significantly with market movements. For example, if a trader holds a position in a stock, any decline in that stock’s market price directly impacts the value of that position, leading to potential financial losses.

In contrast, other types of risks mentioned do not specifically pertain to the fluctuations in market prices affecting trading positions. Credit risk involves the possibility that a borrower will default on a loan or other financial obligation, while financial risk encompasses a broader range of risks associated with financial instruments and transactions. Concentration risk arises from lack of diversification in investments, exposing an entity to potential loss when a single asset or group of assets decline in value.

Thus, market risk is the most relevant to the question, as it directly addresses the risk tied to market price movements affecting trading positions.