RISK ACCOCIATED IN FUTURE AND OPTIONS

The main risk associated with trading futures and options is the potential for loss due to price movements in the underlying asset. In the case of futures, the contract obligates the buyer to purchase the underlying asset at a predetermined price on a specific date in the future. If the market price of the underlying asset falls below the agreed upon price, the buyer incurs a loss. In the case of options, the buyer has the right but not the obligation to purchase or sell the underlying asset at a predetermined price on a specific date in the future. If the market price of the underlying asset does not reach the strike price, the buyer may lose the entire premium paid for the option.

Another risk is the credit risk, where counterparty may default on their contractual obligations.

Additionally, there is also the risk of liquidity risk, where the market may be illiquid and it may be difficult to close out a position at a fair price.

Lastly, there is also the risk of Volatility, where the underlying asset’s price fluctuates wildly and unpredictably, making it difficult to predict the future price of the asset.