What does execution risk refer to in trading?

What does execution risk refer to in trading?

• A. The possibility of trade delay due to high volume
• B. The risk of not achieving the desired price for a trade
• C. The potential for market manipulation affecting prices
• D. Loss of funds due to software failure during transactions

Answer: (B)

Execution risk refers to the risk of not achieving the desired price for a trade. This can occur in various market conditions, such as when there is high volatility or low liquidity, which may lead traders to execute their orders at prices that differ from what they intended. For example, if a trader wants to buy a stock at a specific price, but the market moves quickly, the order may be filled at a higher price than anticipated. This discrepancy can significantly impact the profitability of a trade and is a crucial consideration for traders when entering and executing orders. By understanding execution risk, traders can better manage their orders, utilize strategies such as limit orders, and optimize conditions to mitigate this risk as much as possible.

Execution risk refers to the risk of not achieving the desired price for a trade. This can occur in various market conditions, such as when there is high volatility or low liquidity, which may lead traders to execute their orders at prices that differ from what they intended. For example, if a trader wants to buy a stock at a specific price, but the market moves quickly, the order may be filled at a higher price than anticipated. This discrepancy can significantly impact the profitability of a trade and is a crucial consideration for traders when entering and executing orders. By understanding execution risk, traders can better manage their orders, utilize strategies such as limit orders, and optimize conditions to mitigate this risk as much as possible.