Building Automated Trading Strategies October 2018 | Page 25

(3) Extreme-Volatility Risk
➢ Management: Adding time parameters (i.e. not trading 30 minutes
before and after, scheduled news releases)
(4) Extreme Slippage
➢ Management: Trading exclusively with ECN/STP brokers (avoiding
dealing-desk firms which create markets within markets)
(5) Systematic Liquidity Risk (we refer to systematic liquidity risk and not
to non-systematic liquidity risk)
➢ Management: Using tight leverage and applying your automated
strategies on dedicated accounts (never confuse automated trading
with manual trading)
(6) Counter-party defaults
➢ Management: Trading only with high-regulated brokers having a
long presence in the market and maintaining headquarters in
respectful countries
(7) Software/Hardware Failures
➢ Management: A VPS can reduce the occurrence of such failures
There are other risks that it is even more difficult to manage. For example,
black swan events. Black swan events refer to news/events that deviate
significantly beyond the market expectations.
Latency
Latency refers to time delays between a request and a response. There are
internal and external sources of latency (Eugene A. Durenard 2013) 6 :
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