Risk engine
Risk is not an isolated chapter. It is an underlying system throughout Trader OS.
Six layers
Risk extends from an individual trade to the entire system:
- 1Trade Risk
- 2Strategy Risk
- 3Asset Risk
- 4Venue Risk
- 5Portfolio Risk
- 6System Risk
What each depth teaches
Foundation teaches you to keep any single mistake from being fatal: stops, position size, risk per trade, and daily loss limits. Advanced explains how portfolio risks combine. Institutional covers risks beyond prices: counterparties, venues, models, and operations.
Kill Switch
A system must stop immediately when something goes wrong, without depending on your emotions at that moment.
Write kill-switch rules while calm. Waiting until an exchange outage, a data error, or a loss-limit breach to debate them is too late.
PnL Attribution
Profit and loss must be decomposed into nine components:
Ultimately, answer: why exactly are you making money? If most returns are Directional, you are mainly bearing market direction risk. If Execution and Fee consume most of Signal, the problem is execution rather than research.
Connections to the course
- Chapter 12 · Risk of Ruin and Chapter 18 · Liquidation feedback are the Foundation's two cornerstones of the risk engine.
- Advanced D · Portfolio and risk develops portfolio-level risk.
- The 3D Risk Room and Crisis Simulation Room let you use these rules under stress; see 3D market simulations.