Why risk has a veto
The independent layer between every signal and the market, and what it is allowed to do.
Every trade a signal proposes passes through a separate risk layer before it reaches the market. That layer does not try to predict anything. Its job is to decide how much can be risked, when a position must be closed, and when the system should stop trading altogether, and it can overrule any signal.
What the risk layer controls
- Size. Position size is set from the amount at risk, not from conviction. A strong signal does not earn a bigger bet.
- Loss limits. There are hard limits per trade and per day. When a limit is reached, new trades stop.
- Exposure. Positions are capped by market and in aggregate, so one idea cannot quietly become the whole book.
- Reconciliation. Our records are reconciled against the broker's. If they disagree, trading halts automatically until a person has looked.
- Kill switch. Any account can be switched off instantly, independent of the strategy code.
Why separate it
Signals are optimistic by construction: they exist to find reasons to trade. Putting the brakes in the same code as the accelerator invites the brakes to be tuned away. Keeping risk independent means a clever model, or a confident person, cannot override the limits in the moment.
The result is a system whose worst days are designed in advance rather than discovered.
This note describes research methods. It is not investment advice and does not describe the performance of any account or fund.