What Is the Primary Risk Associated with Executing a Box Spread?

The primary risk associated with a box spread is counterparty risk, especially in the over-the-counter market, although this is mitigated on a centralized exchange by the clearing house. On an exchange, the main risk is transaction costs and slippage.

Because the theoretical profit is small (tied to the risk-free rate), high commissions or adverse execution prices (slippage) on the four legs can easily turn the theoretical profit into a loss.