Risks of Trading Indices

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Any form of investing or trading involves risks and indices trading is no different.

Two of the main risks to be aware of with indices trading are:

Volatility risk

Volatility risk refers to the risks associated with index price movements.

Index prices can be volatile at times and while this volatility can create trading opportunities, it can also be a risk factor. Unfavourable price moves can result in significant losses for traders.

If you do not have sufficient funds in your account to cover potential losses, your positions may be automatically closed.

Leverage risk

While leverage is a powerful tool that can magnify trading gains, it can also work against you by magnifying trading losses.

If a large amount of leverage is used to trade, even a relatively small price movement in the wrong direction can result in substantial losses. 

It’s important to be aware that losses can exceed the amount invested.

Reprinted from eTorothe copyright all reserved by the original author.

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