Risk Disclosure Statement

# Risk Disclosure Statement

**Version:** 1.0.0
**Effective date:** 2026-05-07

This Risk Disclosure Statement supplements the [Terms of Use](DISCLAIMER.md) (the "**Terms**") and the [Privacy Policy](PRIVACY.md). It describes risks specific to the instruments, strategies, and technologies that the TradeCommander software (the "**Software**") interacts with. It is **not exhaustive** — it is impossible to list every risk of trading or every risk of running automated software. Use this document as a starting point, read your broker's full disclosure documents, and consult a licensed professional before risking real capital.

By using the Software, you acknowledge that you have read, understood, and accepted the risks described here, and that you are solely responsible for evaluating whether any instrument, strategy, or feature is appropriate for your circumstances.

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## 1. General Trading Risk

- **Loss of principal.** You can lose every dollar you deposit with your broker.
- **Volatility.** Prices can move sharply against you, intra-day or overnight, with little or no warning. Halts, limit-up / limit-down events, and circuit breakers can trap you in a position.
- **Liquidity risk.** A security that appears liquid on average may have wide spreads or no bid at the moment you try to exit. Market-on-close, after-hours, pre-market, low-float, and small-cap names are particularly hazardous.
- **Gap risk.** Markets close. News, earnings, and macro events break overnight. The next print can be far from the previous close, and stops do not protect against gaps.
- **Slippage.** The price you see is not necessarily the price you get. Market orders fill at whatever the next available price is; that can be materially worse than the displayed quote, especially in fast markets or thin names.
- **Order rejections, partial fills, and stuck orders.** Broker APIs reject orders for many reasons — insufficient buying power, PDT violations, suitability blocks, restricted securities, halt conditions, throttling. Partial fills can leave you with an unintended residual position. Stuck or "phantom" orders have happened in this Software's history and can happen again.
- **Concentration risk.** Putting too much of the account into one symbol, one sector, one strategy, or one timeframe magnifies losses.
- **Behavioral risk.** Drawdowns are emotionally hard. Many traders override their own systems at exactly the wrong time. Automation does not solve this — it can compound it.

## 2. Options-Specific Risk

Options are leveraged, time-decaying derivatives. They are **not suitable for everyone**. Before trading options you must read and understand the **OCC's "Characteristics and Risks of Standardized Options"** disclosure, available from your broker.

Specific risks include:

- **Total loss of premium.** A long call or put expiring out of the money is worth zero. You lose 100% of the premium paid, and you can lose it quickly.
- **Time decay (theta).** Options lose value every day, even when the underlying does not move. Long premium positions bleed money as expiration approaches.
- **Implied-volatility risk (vega).** A drop in implied volatility — for example, after an earnings event — can crush a long-option position even if the underlying moves your way.
- **Unlimited or substantial loss on short options.**
  - A naked short call has theoretically unlimited risk; the underlying can rally without bound.
  - A naked short put can lose up to the strike price (less premium received) per share.
  - Cash-secured puts and covered calls limit some of this risk but still expose you to large losses if the underlying gaps or trends sharply.
- **Assignment risk.** Short options can be assigned at any time before expiration (American-style), including unexpectedly on dividend dates, around ex-div, or on illiquid contracts. Assignment converts an options position into a stock position that may not fit your account size, your margin, or your risk tolerance.
- **Exercise / expiration risk.** Long options that are in the money at expiration may be auto-exercised by your broker, which can leave you holding a stock position with insufficient buying power on Monday morning. Pin risk near the strike is real.
- **Multi-leg-strategy risk.** Vertical spreads, calendars, diagonals, iron condors, butterflies, straddles, strangles, and PMCC (Poor Man's Covered Call) structures can fail in ways not obvious from the textbook payoff diagram, especially under early assignment, volatility shifts, and partial fills of one leg.
- **Liquidity risk in options.** Many strikes and expirations have wide spreads, low open interest, or no bid. Closing a position can cost more than you expect or may be impossible without taking a large markdown.
- **Greeks are estimates.** Delta, gamma, theta, vega, and rho are model outputs. They drift in real time and the model can be wrong, especially around binary events.
- **Corporate actions.** Splits, mergers, special dividends, and spinoffs can change strike, multiplier, deliverables, and assignment economics in non-obvious ways.

The Software offers options strategies including, without limitation, `pmcc_v1`, `covered_call_v1`, `wheel_v1`, `directional_options_v1`, `credit_spread_v1`, and `options_scout_v1`. **These are examples, not recommendations**, and they may interact poorly with your account size, margin, or option-trading approval level. Verify your broker's options approval level (0/1/2/3) and ensure each strategy is permitted before enabling it.

## 3. Margin and Leverage Risk

If you trade on margin or use leveraged products:

- **You can lose more than you deposit.** Margin amplifies both gains and losses. A position that moves against you by a small percentage of the underlying can wipe out a large percentage of your margin equity.
- **Margin calls and forced liquidation.** Your broker can liquidate positions at any time, without notice and without consulting you, to satisfy margin requirements. The broker chooses what to sell, when, and at what price. The result may be far worse than what you would have done voluntarily.
- **Maintenance-margin changes.** Brokers can raise margin requirements at any time, especially for volatile names, names approaching corporate actions, or during market stress. A position that was margin-compliant yesterday may not be today.
- **Pattern Day Trader (PDT) restrictions.** U.S. accounts with equity below $25,000 that execute four or more day trades in five business days may be flagged as PDT and restricted. The Software does not guarantee to keep you under the PDT threshold.
- **Regulation T.** Federal Reserve Regulation T governs initial margin for U.S. securities. Your broker may impose stricter house requirements.
- **Interest cost.** Margin loans accrue interest. The Software does not optimize, track, or report margin interest.

## 4. Cryptocurrency-Specific Risk

If you use the Software's crypto features:

- **Extreme volatility.** Crypto markets can move 10–50% in a day with no fundamental news. Liquidity is unevenly distributed across venues and can vanish during stress.
- **24/7 market.** Crypto trades around the clock. Automated strategies can hit drawdowns, liquidations, or unexpected fills overnight, on weekends, and during holidays when you are asleep, traveling, or otherwise inattentive.
- **Custody and counterparty risk.** Exchanges and custodians can fail, freeze withdrawals, get hacked, get sanctioned, file for bankruptcy, or simply disappear. **Funds held at an exchange are not your funds in the same sense as funds in a regulated brokerage; you are an unsecured creditor of that exchange.**
- **Regulatory risk.** The legal status of cryptocurrency, stablecoins, derivatives, staking, and lending is changing rapidly and varies by jurisdiction. An asset that is legal to trade today may be restricted, delisted, or criminalized tomorrow. The Software does not track or enforce jurisdiction-specific crypto rules.
- **Tax complexity.** Crypto transactions trigger tax events in ways that surprise even experienced traders (token swaps, airdrops, staking rewards, hard forks, NFT trades). Reporting requirements include FBAR (FinCEN Form 114), Form 8938, Form 8949, and Schedule D where applicable. Consult a CPA.
- **Smart-contract and protocol risk.** If the Software ever interacts with on-chain protocols, those protocols can be exploited, paused, upgraded, or rug-pulled. On-chain transactions are irreversible.
- **Network risk.** Blockchain confirmations can be delayed during congestion. Fees can spike. Transactions can be censored or front-run by MEV bots.

## 5. AI, Algorithmic, and Automated-Trading Risk

The Software uses AI models (including Google Gemini and other large language models) and algorithmic strategies. Specific risks:

- **Hallucination.** AI models can confidently produce false information — invented price levels, fabricated news, miscalculated Greeks, made-up corporate actions, wrong ticker symbols. Treat every AI output as a hypothesis to verify, never as a fact.
- **Model drift and regime change.** A model trained on one market regime can fail in the next. There is no way to know in advance when the regime has changed. Strategies that worked in 2023 backtests may fail in 2026 markets.
- **Look-ahead bias and overfitting.** Backtests can inadvertently use information that would not have been available in real time. A backtest that looks great can be a curve-fit to noise.
- **Latency and ordering.** The Software runs against real-world infrastructure where order events arrive out of order, fills race cancels, broker state lags reality, and market data is stale by hundreds of milliseconds. Strategies that rely on tight timing can break in ways that paper trading does not catch.
- **Cascading bot failure.** A single misclassification, misconfigured cap, or stale credential can cause a bot or fleet to repeatedly place wrong orders. The Software has kill switches, drawdown caps, single-order notional caps, reservation watchdogs, and reconciliation, but **none of these is a guarantee**. They have failed in the past and will fail again.
- **Silent failure.** Code paths can break silently — a logger that swallows an exception, a fallback that masks a critical error, a default that quietly downgrades risk checks. The Software is audited for these patterns regularly, but new ones appear with every change.
- **Configuration risk.** A single environment variable or config flag can change risk caps, change broker mode (paper vs. live), enable a strategy, or disable a kill switch. **You are responsible for reading every change to configuration before applying it.**
- **Update risk.** The Software is open-source and frequently updated. A pulled commit can change behavior, change defaults, change schemas, or introduce regressions. Pin to a version, review every diff, and re-validate after any update.
- **Scheduler and background-process risk.** Bots, fleets, schedulers, alert managers, periodic reconcilers, and other background services run independently of any user interaction. They can fire orders, send alerts, or modify state at any time. **The fact that you are not actively using the UI does not mean nothing is happening.**

## 6. Tax Risk

- **Tax events on every transaction.** Every closed trade, expiration, assignment, dividend, and corporate action can be a taxable event. Wash-sale rules under IRC §1091 can disallow losses and adjust basis in ways that are easy to miss.
- **Form 1099 reconciliation.** The Software's internal P&L, harvest reports, and tax-bracket calculations are **estimates** for personal planning. They are **not** a substitute for the official Form 1099-B, 1099-DIV, 1099-INT, 1099-MISC, or K-1 issued by your broker. **Reconcile against your broker's official tax forms before filing.**
- **State, local, and foreign tax.** The Software does not model state, local, or foreign tax. If you live in or are a resident of a high-tax jurisdiction, your effective rate may be materially higher than the federal rate the Software displays.
- **Short-term vs. long-term gains.** Holding-period rules, qualified dividends, options-on-stock vs. options-on-index treatment, §1256 contracts (60/40 treatment), straddle rules, and constructive-sale rules can all change the tax answer. Consult a CPA.

## 7. Operational, Security, and Data Risk

- **Credential compromise.** If your broker API keys, JWT secrets, admin password, or encryption keys leak, an attacker can place trades or move money out of your account. **Use a unique, strong, randomly-generated password; rotate API keys periodically; never commit secrets to a public repository; never share your screen or your credentials.**
- **Cloud and hosting risk.** If you run the Software on a VPS or cloud instance, that host can be compromised, lose data, or become unreachable. Patch the operating system, restrict SSH, use key-only auth, monitor login attempts, and back up the database.
- **Database corruption.** SQLite databases can corrupt under power loss, disk failure, full disks, or concurrent-access bugs. Back up regularly. The Software does not guarantee point-in-time recovery.
- **Time-zone and clock-skew risk.** Trading depends on accurate time. The Software assumes UTC for broker timestamps and local time for human-readable display. Clock skew can cause missed opens, missed closes, mis-stamped orders, and incorrect tax reporting.
- **Network risk.** A dropped network during order placement can leave you uncertain whether the order was placed. The Software has reconciliation and idempotency protections, but they are not perfect.
- **Software bugs and regressions.** New code paths can introduce bugs that did not exist yesterday. Every update is a risk. Read the diff. Paper-test changes. Be skeptical of "minor" releases that touch the order-management or risk-pipeline code.
- **Open-source supply-chain risk.** The Software depends on hundreds of open-source packages, any of which could be compromised. Pin versions, review changelogs, and use a dependency scanner.
- **No SLA.** The Software has no service-level agreement. There is no support phone number, no business-hours commitment, no guaranteed response time. The Author may be on vacation, asleep, or unavailable when you need help most.

## 8. Strategy-Specific Risk Summary

The Software ships with example strategies. Each carries its own risks; this list is not exhaustive:

- **Momentum / breakout / golden cross.** Underperforms in choppy or mean-reverting markets. Stops can be ripped on noise. Late entries near the top of a trend are common.
- **Mean reversion / VWAP reversion.** Loses big when a "reversion" turns into a trend. The "knife" can keep falling.
- **PMCC (Poor Man's Covered Call).** Long-dated long call (LEAP) plus short-dated short call. Vulnerable to LEAP IV crush, early assignment of the short, and large drawdowns when the underlying drops sharply.
- **Covered call / wheel.** Caps upside and does not protect against significant downside. Assignment timing around ex-div can produce losses larger than the premium collected.
- **Credit spread.** Defined-risk but can lose multiples of the credit received. Pin risk and early assignment matter.
- **Penny / low-float / squeeze plays.** Extreme volatility. Wide spreads. Pump-and-dump schemes. Halts. Delistings. Treat with maximum caution; size accordingly.
- **AI scout / overnight intel / morning brief.** AI-generated suggestions are hypotheses, not recommendations. Verify everything.
- **Insider filings / congressional disclosure.** Public-data signals are widely known and may already be priced in. Filing-date lag can be weeks.

You are responsible for reviewing the source code of any strategy in `backend/app/engine/bots/` and `backend/app/engine/strategies/` before enabling it with real capital.

## 9. Acknowledgement

By using the Software, you acknowledge that:

1. You have read this Risk Disclosure and the [Terms of Use](DISCLAIMER.md).
2. You understand that **trading is risky and that you can lose more than you can afford to lose**.
3. You have evaluated whether each instrument, leverage level, and strategy is appropriate for **your** financial situation, experience, and risk tolerance.
4. You will paper-trade, review the source code, and validate behavior before enabling any strategy with real capital.
5. **You alone are responsible for every trade, every loss, every tax consequence, and every regulatory consequence of your use of the Software.**

**Trade at your own risk.**