What are the primary risks faced by stockbrokers when executing trades?

What are the primary risks faced by stockbrokers when executing trades?

• A. Market risk, credit risk, liquidity risk, and operational risk
• B. Inflation risk, interest rate risk, credit risk, and operational risk
• C. Liquidity risk, operational risk, recovery risk, and market sentiment risk
• D. Market risk, liquidity risk, exchange rate risk, and credit risk

Answer: (A)

The primary risks faced by stockbrokers when executing trades include market risk, credit risk, liquidity risk, and operational risk. Market risk pertains to the potential losses that could arise from fluctuations in market prices, affecting the value of trades executed. This is a fundamental concern for stockbrokers, as they operate within dynamic market environments where prices can change rapidly. Credit risk involves the possibility that a counterparty may default on their obligations during a trade. In stockbroking, this risk is crucial as it affects the reliability of transactions and the overall financial stability of the broker. Liquidity risk refers to the risk that a stockbroker may not be able to buy or sell an asset quickly enough without causing a significant impact on its price. High liquidity is essential for executing trades efficiently, and insufficient liquidity can lead to unfavorable prices or an inability to complete trades altogether. Operational risk encompasses risks arising from inadequate or failed internal processes, systems, or external events. This can include technology failures, human errors, or legal issues that can disrupt trading activities. The other options provided introduce risks that, while relevant, do not encompass the most critical risks commonly faced by stockbrokers in the context of executing trades. Inflation risk and interest rate risk, for example,

The primary risks faced by stockbrokers when executing trades include market risk, credit risk, liquidity risk, and operational risk.

Market risk pertains to the potential losses that could arise from fluctuations in market prices, affecting the value of trades executed. This is a fundamental concern for stockbrokers, as they operate within dynamic market environments where prices can change rapidly.

Credit risk involves the possibility that a counterparty may default on their obligations during a trade. In stockbroking, this risk is crucial as it affects the reliability of transactions and the overall financial stability of the broker.

Liquidity risk refers to the risk that a stockbroker may not be able to buy or sell an asset quickly enough without causing a significant impact on its price. High liquidity is essential for executing trades efficiently, and insufficient liquidity can lead to unfavorable prices or an inability to complete trades altogether.

Operational risk encompasses risks arising from inadequate or failed internal processes, systems, or external events. This can include technology failures, human errors, or legal issues that can disrupt trading activities.

The other options provided introduce risks that, while relevant, do not encompass the most critical risks commonly faced by stockbrokers in the context of executing trades. Inflation risk and interest rate risk, for example,