Risk Management

Protecting capital is the first mandate. LiquidityAI embeds risk discipline into every layer of your trading stack—from data and models to execution and operations—so exposures stay resilient across regimes.

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Our philosophy is simple: measure early, enforce at the edge, and explain everything. LiquidityAI combines quantitative guardrails (VaR/CVaR, exposure caps, drawdown guards) with real-time monitoring and policy enforcement that operates before risk becomes loss.

Framework Overview

Real-Time Monitoring

Latency-aware dashboards track P&L, Greeks, order flow, and venue health in milliseconds with anomaly alerts.

Position Sizing

Kelly-tempered allocation, volatility targeting, and leverage ceilings that adapt to regime and liquidity.

Stress Testing

Historical crashes and bespoke scenarios benchmark drawdown tolerance and trigger pre-approved responses.

Hedging & Limits

Value-at-Risk thresholds, circuit breakers, and cross-asset hedges that contain tail risk and intraday spikes.

Compliance & Audit

Immutable logs, role-based approvals, and sign-offs with searchable evidence trails for audits.

Contingency Protocols

Failover venues, kill switches, DR drills, and orderly degradation when markets misbehave.

What LiquidityAI Provides

Risk Engine

Parametric & historical VaR/CVaR with liquidity and slippage haircuts.
Per-strategy, per-asset, and portfolio views with hierarchy roll-ups.
Real-time limit checks pre-trade, at-trade, and post-trade.

PNL Attribution

Factor, sector, and venue attribution with spread/impact decomposition.
Arrival-price, VWAP, IS benchmarks for execution quality.
Time-bucketed intraday attribution with custom tags.

Scenario Studio

2008/2020/flash-crash replays and user-defined shocks.
Cross-asset spillover and correlation-regime toggles.
Reverse stress tests to locate portfolio breakpoints.

Signal Gating

Meta-labels to suppress signals in fragile regimes.
Drawdown-aware throttling and exposure decay.
Kill-switch hooks for model drift or data anomalies.

Deployment Options

Managed cloud (our default) or customer VPC/on-prem.
Kafka-compatible event bus and REST/WebSocket APIs.
Blue/green rollouts with audit & rollback.

Integrations

Exchange/broker FIX & REST, prime/custody, market data.
S3/GCS data lakes, Postgres/MySQL, Redis.
SIEM hooks (Splunk, Datadog) and PagerDuty alerts.

Real-Time Monitoring

We stream exchange fills, positions, and latency metrics into a unified telemetry bus. Anomaly detectors raise alerts when slippage widens, fills slow, or model drift emerges.

Millisecond P&L attribution and exposure by venue, sector, and strategy.
Heartbeat checks for data feeds and execution gateways; automatic failover.
PagerDuty/Slack escalation with on-call rotations and runbook links.

Position Sizing & Leverage

Every order passes through sizing rules balancing expected edge against downside. Margin availability, portfolio correlation, and liquidity determine final leverage.

Kelly fractions tempered by regime volatility and drawdown state.
Dynamic notional caps per asset, sector, venue, and strategy.
Net exposure limits across correlated instruments and factor groups.

Value-at-Risk & Stress Testing

Risk forecasts blend parametric VaR with historical bootstraps to capture fat tails. Scenario engines replay events like 2008, 2020, and exchange halts to pressure-test resilience.

Monte Carlo and historical simulation VaR at multiple horizons.
Liquidity-adjusted VaR incorporating spread/impact haircuts.
Reverse stress tests to find breakpoints before they hit.

Exposure Limits & Hedging

Portfolio construction enforces hard limits while opportunistic hedges dampen market shocks.

Limit	Description	Scope
Gross / Net Exposure	Caps per book, sector, and portfolio.	Pre-trade, continuous
VaR / CVaR	Horizon-specific, liquidity-aware risk limits.	Daily & intraday
Leverage Ceiling	Dynamic ceilings by regime/volatility.	Pre-trade
Single-Name Concentration	Max notional / % NAV per symbol.	Continuous
Turnover / Capacity	ADV- and spread-aware throttles.	Daily
Drawdown Guards	Soft/hard triggers with cool-offs.	Real-time
Venue Health	Route only to healthy venues.	At-trade

Auto-hedging of delta, vega, and basis risk where liquid.
Hard stop-outs and volatility circuit breakers with cool-off timers.
Cross-venue allocation to avoid single-point failures.

Operational Controls

Systems are built with failure in mind. Redundant processes and mandatory approvals curb operational risk.

Dual-control for production pushes and parameter changes.
Disaster recovery with hot/cold site replication and regular drills.
Comprehensive audit logs for post-mortems and regulatory reviews.

Policies as Code

LiquidityAI evaluates policy before orders hit the market. A simplified guard illustrates how trades are blocked when budgets breach limits.

type Order = { symbol: string; side: "BUY" | "SELL"; notional: number }
type Portfolio = { nav: number; gross: number; net: number; dd: number }
type Limits = { varDaily: number; grossCap: number; ddMax: number }

function riskCheck(order: Order, ptf: Portfolio, limits: Limits): "PASS" | never {
  // 1) Gross exposure cap
  const projectedGross = ptf.gross + Math.abs(order.notional);
  if (projectedGross > limits.grossCap * ptf.nav) throw new Error("Gross exposure limit breached");

  // 2) Liquidity-aware VaR (toy)
  const varEstimate = estimateVaR(order.symbol, order.notional, { liquidityHaircut: true });
  if (varEstimate.daily > limits.varDaily * ptf.nav) throw new Error("VaR limit breached");

  // 3) Drawdown-aware throttling
  if (ptf.dd > 0.07) throttle(order, 0.5); // reduce size by 50% past 7% DD

  return "PASS";
}

Incident Playbooks

When seconds matter, predefined playbooks reduce cognitive load and ensure consistency.

Volatility Spike

Raise cost/impact haircuts and reduce participation caps.
Switch routing to higher-quality venues; widen limits.
Enable drawdown throttle; snapshot audit context.

Data Feed Degradation

Freeze model updates; switch to redundant feed.
Fallback to conservative execution templates.
Notify humans; open incident channel with runbook.

Cloud Region Incident

Fail over to warm standby in secondary region.
Reconcile state via journaled event log.
Post-incident: attach artifacts to audit ticket.

Limit Breach

Block new orders; unwind to policy floor automatically.
Require dual approval for resumption.
Export signed report for compliance archive.

FAQ

How is LiquidityAI different from a generic risk dashboard?

We enforce policy at the point of decision. Limits, VaR, and drawdown rules are evaluated pre-trade and at-trade with hard blocks, not just after-the-fact charts.

Can we run LiquidityAI in our own VPC?

Yes. We support managed cloud, customer VPC, or on-prem deployments. Secrets never leave your perimeter in those modes.

What does integration look like?

Connect your market data and broker/exchange endpoints, map symbols/venues, define policies as code, and start streaming telemetry into our bus. Most clients begin with read-only mode to validate.

Do we have to use your execution stack?

No. You can keep your existing OMS/EMS and use LiquidityAI purely for monitoring and risk blocks via API webhooks.

How are logs & audits handled?

We journal all decisions (signals, limits, approvals, executions) with checksums and time-sync. Evidence is searchable and exportable for audits.

Can we pilot in read-only?

Yes. Most teams start with read-only telemetry, then enable soft blocks, and finally hard blocks after validation.

Disclaimer

This page describes LiquidityAI’s risk tooling and general risk concepts. It is for informational purposes only and does not constitute investment advice or a solicitation to buy or sell any security or strategy. Past performance does not guarantee future results.