Risk Management System

Risk management is the identification, assessment, and mitigation of risks. This will be followed by a coordinated and an economical application of resources to minimize the impact of unfortunate events or to maximize the realization of opportunities.

A risk management system (RMS) is installed within an algorithmic trading platform to manage and mitigate the risks of data access, consistency and quality of data, network protocols, and scalability factors.  

In algorithmic trading platform architecture, there are normally two places where risk management system is installed:

1. Within the application - It should not allow a trader to set wrong parameters or any fat-finger type errors.

2. Within Order Management System - Before sending the orders to exchanges, we need to make sure that the orders are verified by some risk management system. RMS checks for the max order size, the net portfolio position, the max trade value etc before sending orders to the exchanges.