A category of risk that includes all key risk exposures for an entity, whilst conducing business. This spans a broad range of risks such as market risk, credit risk, operational risk, liquidity risk, etc. These types of risk are considered “principal” in the sense that they represent the major or most prominent sources of risk that an entity encounter or is exposed to in its routine operations and activities.

In another context, principal risk is a type of risk that arises from potentiality to lose part or all of the principal (par value or invested value) of a financial asset. It is the risk that the seller of a financial asset such as securities will not receive payment after delivery on its obligations. It may also refer to the risk that the buyer will pay, but not get the underlying assets delivered, either on time or if any. In such a situation, the full value of the securities or amounts paid/ transferred will be at risk. Principal risk may also arise from any potential loss of the full value (or contractual rights) involved in a transaction, typically as a result of the default or insolvency of a counterparty.