Which risk is characterized by the possibility of both profit and loss?

Speculative risk is a category of risk that involves the chance of both profit and loss. Unlike pure risk, which only presents the possibility of losing something of value without the potential for gain, speculative risk includes scenarios where individuals or businesses can invest in opportunities that may yield positive returns or result in financial losses.

For instance, investing in the stock market is a speculative risk because while there is a chance of making significant profits, there is also the possibility of experiencing losses. This dual nature of potential outcomes is what distinctly defines speculative risk.

In contrast, pure risk only involves outcomes that result in a loss or no loss at all, lacking any opportunity for profit. Legal risk primarily pertains to the financial impacts of legal actions or regulations, while consequential risk typically involves losses that result from a primary risk event, neither of which encapsulate the potential for gains alongside losses.