Risk Spillovers

Risk spillovers are the way that risk from one asset, market, or entity leaks into another. For example, if a major crypto exchange faces a liquidity problem, it can spill over to impact the value of tokens traded there or even affect the broader crypto derivatives market through panic selling.

Recognizing these spillovers is a key task in systemic risk assessment. By understanding how risks travel, traders can better position their portfolios to avoid becoming collateral damage.

It is a vital concept for anyone involved in interconnected, high-leverage markets, emphasizing the importance of staying informed and aware.