Here are the Risk involved in Trading Derivatives

#1
Derivatives are investment instruments that consist of a contract between parties whose value derives from and depends on the value of an underlying financial asset. However, like any investment instrument, there are varying levels of risk associated with derivatives. This post will cover derivatives risk at a glance, going through the primary risks associated with derivatives: market risk, counterparty risk, liquidity risk, and interconnection risk
Market Risk
Market risk refers to the general risk of any investment. Investors make decisions and take positions based on assumptions, technical analysis, or other factors that lead them to certain conclusions about how an investment is likely to perform.
Counterparty Risk
Counterparty risk, or counterparty credit risk, arises if one of the parties involved in a derivatives trade, such as the buyer, seller, or dealer, defaults on the contract. This risk is higher in over-the-counter, or OTC, markets, which are much less regulated than ordinary trading exchanges.
Liquidity Risk
Liquidity risk applies to investors who plan to close out a derivative trade prior to maturity. Overall, liquidity risk refers to the ability of a company to pay off debts without big losses to its business.
Interconnection Risk
Interconnection risk refers to how the interconnections between various derivative instruments and dealers might affect an investor's particular derivative trade.
 

Nish

Well-Known Member
#2
Options are never for daily trading, but with some years of experience and proper break-out or break-down confirmations can give moderate profits !
And if capital and sufficient margin is available then straddles can be well managed with lesser risk !
.. Off-course , short-term ( 3 to 6 mnth) delivery trades are much better , if SL are managed strictly !

Strangely most retail traders cut-short or exit profitable trades with samll profits and carry-on with loss making trades or delivery positions ! :)
 
#3
Trading in derivatives needs more clarity in futures and options. Derivatives can be considered as the more safer option when investing in equities and commodities.
 
#4
Risk is something that you should be number one in the list of the factors that makes a bisuness successful. The involvement of the risk in the trade is to have bring a distinction between the real traders and those who are not. This also helps to reduce the number of traders avoid over exploitation in certain sector.
 
#5
Derivatives are investment instruments that consist of a contract between parties whose value derives from and depends on the value of an underlying financial asset. However, like any investment instrument, there are varying levels of risk associated with derivatives. This post will cover derivatives risk at a glance, going through the primary risks associated with derivatives: market risk, counterparty risk, liquidity risk, and interconnection risk
Market Risk
Market risk refers to the general risk of any investment. Investors make decisions and take positions based on assumptions, technical analysis, or other factors that lead them to certain conclusions about how an investment is likely to perform.
Counterparty Risk
Counterparty risk, or counterparty credit risk, arises if one of the parties involved in a derivatives trade, such as the buyer, seller, or dealer, defaults on the contract. This risk is higher in over-the-counter, or OTC, markets, which are much less regulated than ordinary trading exchanges.
Liquidity Risk
Liquidity risk applies to investors who plan to close out a derivative trade prior to maturity. Overall, liquidity risk refers to the ability of a company to pay off debts without big losses to its business.
Interconnection Risk
Interconnection risk refers to how the interconnections between various derivative instruments and dealers might affect an investor's particular derivative trade.
This is surely gonna help the new traders here. Thanks for sharing.
 
#6
Derivatives are investment instruments that consist of a contract between parties whose value derives from and depends on the value of an underlying financial asset. However, like any investment instrument, there are varying levels of risk associated with derivatives. This post will cover derivatives risk at a glance, going through the primary risks associated with derivatives: market risk, counterparty risk, liquidity risk, and interconnection risk
Market Risk
Market risk refers to the general risk of any investment. Investors make decisions and take positions based on assumptions, technical analysis, or other factors that lead them to certain conclusions about how an investment is likely to perform.
Counterparty Risk
Counterparty risk, or counterparty credit risk, arises if one of the parties involved in a derivatives trade, such as the buyer, seller, or dealer, defaults on the contract. This risk is higher in over-the-counter, or OTC, markets, which are much less regulated than ordinary trading exchanges.
Liquidity Risk
Liquidity risk applies to investors who plan to close out a derivative trade prior to maturity. Overall, liquidity risk refers to the ability of a company to pay off debts without big losses to its business.
Interconnection Risk
Interconnection risk refers to how the interconnections between various derivative instruments and dealers might affect an investor's particular derivative trade.
Thanks for sharing such valuable information!
 

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