Qualified Financial Adviser (QFA) Investments Exam 1 Practice Test

Macro risk, or systematic risk, is the kind of risk that moves the entire market or broad groups of assets. It comes from economy-wide factors like recessions, interest rate changes, or geopolitical shocks. Because these forces affect many investments at once, they can’t be eliminated just by holding more different stocks; they are inherent market risk that you bear as an investor.

Micro risk, or idiosyncratic risk, is specific to a single asset or issuer. It stems from company-level or asset-level factors such as a management change, product failure, or a legal issue. This type of risk can be largely reduced through diversification—holding a wide range of different assets means that problems with one won’t necessarily drag down the whole portfolio.

So the key difference is market-wide and non-diversifiable versus asset-specific and diversifiable. The correct idea is that macro risk affects entire markets, while micro risk is specific to a single asset or issuer and can be diversified away.