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Can someone explain to me what is direction/non-directional risk? Went through few sites but couldn't understand much.

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Please, would you provide a link or some other reference. "Directional risk" can mean a lot. Is it the contect of options? Which asset class? –  Richard Jun 10 at 10:25
    
this is in the case of FRM. Below is as link to some definition: flashcardmachine.com/frm-schweser-topic1.html –  leelaw Jun 10 at 23:35

1 Answer 1

These terms mean different things in different circles.

Options traders would consider any exposure to price changes in the underlying to be a directional risk. A hedged option position still has non-directional risk though, since option prices can change without any change in the price of the underlying. Equities traders would generally not consider exposure to a price change in a stock as necessarily constituting directional risk. They are more likely to only consider exposure to price changes in the broad market or sector as a directional risk. Macro traders generally only consider exposure to changes in major aggregates (e.g. crude oil prices, the dollar) to constitute directional risk.

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