Price risk refers to the potential for financial losses arising from adverse price movements in commodities, securities, or other assets. This fundamental market risk affects all trading and investment activities, requiring active management through diversification, hedging, or position sizing strategies. Price risk varies by asset volatility and holding periods.

Price risk management involves understanding volatility patterns, correlation relationships, and potential extreme price movements. Hedging tools including futures, options, and swaps help transfer price risk to other market participants. Effective price risk management balances risk reduction costs against potential loss prevention benefits.

Real-world example: An airline faces significant price risk from jet fuel cost fluctuations, potentially losing $10 million annually from a $10 per barrel oil price increase, prompting hedging strategies using crude oil futures or jet fuel swaps.