A Trading Engine Is Only as Strong as Its Controls

Risk management should not be treated as a document added after the trading strategy has been built. It belongs inside the architecture.

Risk Controls Can Include

• Maximum position size and total exposure limits

• Maximum number of simultaneous positions

• Defined entry, exit and protective conditions

• Daily or session-level loss thresholds

• Instrument eligibility and trading-window restrictions

• Connectivity and execution-error handling

• Emergency shutdown or manual intervention mechanisms

• Detailed system and execution logs

The Regulatory Direction Is Also Moving

ASIC has proposed updated principles for the development, testing, use and monitoring of trading

algorithms, including safeguards such as kill switches for aberrant algorithmic activity. ASIC has also

highlighted the potential for AI and algorithmic systems to amplify market volatility or produce unexpected outcomes during stressed conditions.

Engineering principle: the system should have a clearly defined answer to the question, “What happens when something goes wrong?”

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