Market participants must understand that derivatives being leveraged instruments, have risks like-
Counterparty risk– default by counterparty.
Price risk– loss on position because of price move.
Liquidity risk– inability to exit from a position.
Legal or regulatory risk– enforceability of contracts.
Operational risk– fraud, inadequate documentation, improper execution etc.
Market participants who trade in derivatives are advised to carefully read the model risk disclosure document given by the broker to his clients at the time of signing agreement.