What Is Realised risk?
Realized risk refers to the actual risk that has manifested in a financial investment or trading position, leading to either a loss or lower-than-expected returns. It is the quantifiable loss or underperformance that occurs once a position is closed, as opposed to potential or “unrealized” risks that exist while a position remains open. Realized risk essentially captures how much an investor’s concerns or expectations about market risk have actually materialized.
Example: If an investor buys a stock at $100 per share and later sells it at $90, the realized risk is a 10% loss on the investment. This is an example of a risk that has been “realized” because the position is closed and the loss is confirmed.
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