Risk Definition

Risk is present in all human undertakings because events do not transpire as planned. Risks are events that may occur and, if they do occur, have a harmful effect. In finances, risk generally means the possibility of loss of capital. For example, when you purchase shares of stock in a company you are taking a risk because the company could go out of business or perform poorly.

Some risk is involved in virtually all financial transactions, though some are deemed nearly risk free. For example, putting money into a savings account or a money market account is about as risk free as possible. On the other hand, putting money into junk bonds is pretty risky. In finances, risk is usually balanced by the potential for a high return on investment. Thus, junk bonds can potentially return more than the money market.