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Credit risk refers to the risk of loss that occurs when a counterparty fails to fulfil its obligations under a financial contract. Credit risk is present in various financial markets, including the stock market, the bond market, and the derivatives market. It is a key consideration when evaluating the overall risk profile of an investment or trading strategy.
In stock trading, credit risk can arise when a company defaults on its debts, leading to a decline in the stock value. In bond investing, credit risk can arise when the bond issuer defaults on its payments. Finally, in derivatives trading, credit risk can arise when the counterparty in a transaction fails to meet its financial obligations to the other party.
Credit risk cannot be eliminated when trading, but it can be managed.
Perform due diligence: Traders can do thorough research and assess the credit rating of the counterparty or issuer of the financial instrument. They can also keep a close eye on market conditions by staying up to date with news sources, economic reports, and financial reports.
Use collateral: Traders can require their counterparty to post collateral in the form of cash, securities, or other assets when making a trade to cover credit risk. A popular form of collateralisation is having margin requirements on positions.
Diversification: Traders can diversify their portfolios across different financial instrument issuers and asset classes to reduce the risk of total loss in case of a single default.
ADSS offers a range of global markets for traders, with opportunities in indices, commodities, forex, equities and more. We also feature tutorials, how-to guides, and weekly webinars to help you navigate the financial markets and find better trading opportunities. You can start trading and investing online by opening a live trading or demo trading account.
ADSS
8th floor, CI Tower
Corniche Road
PO Box 93894
Abu Dhabi
United Arab Emirates
Trading Services
ts@adss.com
+971 2 657 2414
Investing in CFDs involves a high degree of risk that you will lose your money due to the use of leverage, particularly in fast moving markets, where a relatively small movement in the price can lead to a proportionately larger movement in the value of your investment. This can result in loses that exceed the funds in your account. You should consider whether you understand how CFDs work and you should seek independent advice if necessary.
ADS Securities LLC – S.P.C (“ADSS”) is authorised and regulated by the Securities and Commodities Authority (“SCA”) in the United Arab Emirates under First Category: Dealing in Securities and Fifth category: Arrangement and advice (Introduction). ADSS is a Limited Liability Company – Sole Proprietorship Company incorporated under United Arab Emirates law. The company is registered with the Department of Economic Development of Abu Dhabi (No. 1190047) and has its principal place of business at 8th Floor, CI Tower, Corniche Road, P.O. Box 93894, Abu Dhabi, United Arab Emirates.
The information presented is not directed at residents of any particular country outside the United Arab Emirates and is not intended for distribution to, or use by, any person in any country where the distribution or use is contrary to local law or regulation.
ADSS is an execution only service provider and does not provide advice. ADSS may publish general market commentary from time to time. Where it does, the material published does not constitute advice, or a solicitation, or a recommendation to a transaction in any financial instrument. ADSS accepts no responsibility for any use of the content presented and any consequences of that use. No representation or warranty is given as to the completeness of this information. Anyone acting on the information provided does so at their own risk.
