Investing in any commodity has certain risks, and so does our investment in commodities. If we can effectively manage the probability of risk, then risk may bring profits.
The risks of investing in commodities mainly include the following aspects:
1. Market risk: Market risk refers to the risk suffered by financial assets due to changes in market prices, which usually shows that the value of financial instruments or their combinations changes with changes in market factors. Market risk can be divided into interest rate risk, exchange rate risk, price risk and derivative market risk.
2. Liquidity risk: There are two main forms of liquidity risk: one refers to the risk that financial assets cannot be traded quickly at a reasonable price due to insufficient market liquidity, that is, the liquidity problem in the process of converting financial assets into money; The other refers to the risk that the cash flow of the institution cannot meet the payment demand, that is, the liquidity risk caused by insufficient money, such as the risk of early redemption of funds and the risk of bank run.
3. Legal and policy risk: Legal risk refers to the risk that the transaction contract signed by a financial institution cannot be actually performed because it does not meet the requirements of laws or regulatory authorities, thus causing losses to financial institutions.
Policy risk refers to the risk brought by macroeconomic policy changes to micro-subjects. The government usually takes some policy measures to regulate the economy, such as fiscal policy and monetary policy. These policy changes themselves will have a certain impact on the financial market and are an important part of macroeconomic risks.
4. Operational risk: Operational risk refers to the risk of unexpected losses caused by the control failure of the information system, trading system or internal risk monitoring system of financial institutions. This risk is generally caused by human error, system failure, operating procedure error or control failure. It includes: "personnel risk" (including unskilled, unprofessional or fraudulent employees) and "process risk" (including model risk, transaction risk, control risk, etc. ) and "technical risks" (including system failures, program errors, communication failures, etc. ).
5. Credit risk: Default risk exposure is the amount of risk borne by the target assets, which is reflected by the difference between the asset value of the defaulter and the value of the target assets at maturity; The probability distribution of default is used to reflect the situation of default and the change of credit rating, which is calculated from the historical data of default; Default repayment rate refers to the proportion of the value of liquidated assets, reflecting the actual loss of default.