Trading, despite the possibility of making profits from it, involves many risks that traders must understand and manage carefully. Here are the main risks:
1. Market Risks:
* Price Volatility: Asset prices can fluctuate significantly and rapidly due to economic, political, or even psychological factors of investors. These fluctuations can lead to substantial losses in a short period.
* Systemic Risk: The risk of the collapse of an entire market or a large part of it due to a specific event affecting the financial system as a whole.
* Liquidity Risk: Difficulty in buying or selling an asset at a fair price and in a timely manner due to a lack of buyers or sellers in the market. This can lead to missed opportunities or incurring larger losses when forced to sell at a lower price.
2. Asset-Specific Risks:
* Company-Specific Risk: For stocks, there are risks related to the company's financial and managerial performance, and negative news that may affect the stock price.
* Credit Risk: When trading bonds, there is a risk that the issuer may not be able to repay the debt.
* Currency Risk: When trading foreign currencies or assets denominated in another currency, fluctuations in exchange rates can impact the value of the investment.
* Cryptocurrency Risks: In addition to extreme price volatility, there are risks related to cybersecurity.