Holding period risk
What is holding period risk?
Holding period risk refers to the risk, whilst holding a bond, that a better opportunity will come around that you may be unable to act upon. The longer a bond's term, the more likely that a more attractive investment opportunity may arise.
Where have you heard about holding period risk?
You may have come across this term after investing in a security that you don't intend to sell on for a while. Generally, a holding period is considered long term when the investment is held for longer than one year.
What you need to know about holding period risk.
An example of a holding period risk is a firm giving a potential retail client a sales quote that is active for a certain time. With the potential client having a certain time period in which to sign the offer for the commodity, the offering firm puts itself at a financial disadvantage since the market's price on the wholesale market may change. This financial risk is usually reduced by the offering firm placing a risk premium onto the wholesale price of a commodity.