The chance or possibility that an investment’s actual return diverge from expected levels. Risk denotes any uncertainty with respect to an investment, particularly in terms of its actual results versus expected performance over the course of a certain period of time. Risk may arise due to market conditions (market risk) or other reasons (investment-specific risks), etc. All investments involve a degree of risk, which can potentially impact an investment in a negative manner.

Risk may also imply any potential financial loss inherent in an investment decision. For example, as investment risks increase, investors seek higher returns as compensation for taking additional risks, and vice versa. Investment risk is typically defined as the possibility that investors will have to buy or sell a specific amount of an underlying asset at a strike price that is worse than the market price, resulting in potential significant losses. Losses can be either in terms of negative returns or lower than expected returns. It may also refer to the probability or likelihood of losses that wipe out, partially or completely, any expected return on any particular investment.