What is a primary risk associated with short-term trading?

The primary risk associated with short-term trading is indeed the potential of market volatility affecting short-term gains. Short-term trading involves holding positions for a brief period, which makes traders particularly susceptible to the rapid fluctuations that can occur in the market. Since short-term traders aim to capitalize on small price changes, any unexpected volatility can significantly impact their profits or result in losses.

Incorporating this aspect, the risk tied to market volatility is compounded by shorter holding periods; even slight movements in stock prices can lead to a higher probability of loss if the market takes an unfavorable turn. This unpredictability creates challenges for traders who focus on timing their trades perfectly to benefit from these transient price shifts.

While transaction costs are a consideration for short-term traders, they are generally viewed as a separate aspect of risk rather than a primary risk. Similarly, while limited investment diversification could pose risks, it's not unique to short-term trading strategies and is more relevant to overall investment management than to the specific risks of short-term trading. The long-term investment returns will not typically be decreased by short-term trading itself, making that option less relevant as well.