Various Types of Risks in Stock Market


Black Swan Risk

On 13th March 2020 at 9:20 AM, Nifty hit 10% lower circuit and trading was halted for 45 minutes. After a second pre-open session of 15 minutes, markets opened at 10:20 AM.

When the circuit opened, Sensex and Nifty shot up as much as 5,381 points and 1,604 points respectively from their early morning lows. Sensex closed 1,325 pts or 4.04% higher at 34,103 and the Nifty50 index closed at 10,023.65, up by 433 points or 4.54%.

Liquidity Risk

Gap Risk

18th may 2009 Markets opened at 9:55 AM as this was the market opening time at that time Nifty immediately hit an 20 % upper circuit at 10.01 am and the markets froze. So markets were open only for 6 minutes. There are many such instances of overnight gaps

Technical Glitches

On 24th February 2021, NSE faced a technical glitch for the entire day and hence trading was halted.

Negative Pricing Risk!?

21st april 2020 A historic drop occurred on April 20, when the price of West Texas Intermediate crude dropped by almost 300%, trading at around negative $37 per barrel.

Algorithm (Algo)/Execution Risk

On August 1, 2012 Due to algo issue Knight capital did 397 million shares and assumed a net long position in 80 stocks of approximately $3.5 billion as well as a net short position in 74 stocks of approximately $3.15 billion. Knight lost over $460 million

Flash Crash Risk

31st may 2019 Flash crash in Banknifty of 1000+ points. Friday’s high of the Bank Nifty was 31,783 and the low point of the index was 30,623 Such flash crash has been seen in many stocks as well on other instances

Gamma Risk

26th sept 2019 It was an expiry day and 30000 CE went from 50 to 1000+ in minutes and eventually closed at 0 This move caused lot of leveraged traders to lose a significant amount of their capital Many such instances of gamma risk on expiry day

Vega Risk

On 24th August 2015, the Indian markets declined close to 5.92%. Nifty around 490 points but something unusual happened on that day. Far otm Call options shot up inspite of such a huge fall
Vix shot up 64%