1
Position state
Track settled and unsettled quantity, average cost, open orders, and available buying power.
Lesson · Algorithmic and Automated Trading
Portfolio, Position, and Risk Engine
Maintain authoritative cash, positions, exposure, open orders, and risk limits before any order is submitted.
Core concepts
What to understand
Keep the boundaries, state, and authority explicit.
2
Risk budget
Limit loss per trade, total open risk, gross exposure, net exposure, and concentration.
3
Pre-trade decision
Approve, resize, or reject the proposed order before it reaches the broker.
Interactive lab
Portfolio Risk Gate Lab
Process simultaneous signals under account, exposure, concentration, correlation, and risk-per-trade limits.
Portfolio Risk Gate Lab
Deterministic synthetic educational data · no broker or live-market connection
SYSTEM MODEL
Process
Risk the portfolio, not isolated orders
Every proposal must be evaluated against current and pending exposure.
Reconcile
Load confirmed positions, cash, open orders, and broker buying power.
Evaluate
Calculate incremental and resulting portfolio risk.
Decide
Approve, resize, or reject with a recorded reason.
Knowledge check
Check your understanding
Select one answer for each question. Feedback appears immediately, and a wrong choice is answered on its own terms before the rule is restated.
1. Open orders belong in exposure calculations because:
Pending orders can fill and consume capital or risk.
2. Correlation risk means:
Apparent diversification can disappear when related instruments respond similarly.
3. A risk engine should return:
The output must be actionable and auditable before order submission.
4. A $50,000 account risks 1% per trade. The entry is $118 and the stop $114. How many shares, and what notional?
$50,000 × 1% = $500 of risk; $500 ÷ ($118 − $114) = 125 shares; 125 × $118 = $14,750 of notional, 29.5% of the account before any exposure cap is applied.
Practical rules
- Reconcile broker and internal positions before sizing.
- Include pending orders in exposure.
- Make risk limits independent from strategy code.
Common mistakes
- Applying risk checks only after fills.
- Counting correlated positions as independent.
- Letting each strategy assume it owns the full account.
References
Official reading
These sources cover algorithmic controls, market access, broker APIs, system operations, or security.
SEC · Rule 15c3-5 Market Access Controls
Official rule overview describing pre-trade financial and regulatory risk controls for broker-dealers with market access.
FINRA · Regulatory Notice 15-09
Official guidance on supervision, testing, controls, documentation, and monitoring for algorithmic trading strategies.