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Calculate position sizes, validate trades against risk rules, and monitor portfolio exposure. The Risk Manager serves as the security checkpoint in the trading pipeline, ensuring no single trade or portfolio action exceeds predefined risk parameters. It implements position sizing algorithms, correlation checks, drawdown monitoring, and exposure caps to protect capital across all trading activities.
When to Use
Trigger phrases:
"trading risk manager"
"Calculating optimal position sizes based on account risk percentage"
"Validating individual trades against risk parameters before execution"
"Monitoring total portfolio exposure and diversification"
Calculating optimal position sizes based on account risk percentage
Validating individual trades against risk parameters before execution
Monitoring total portfolio exposure and diversification
Implementing drawdown controls and circuit breakers
Checking trade correlations with existing positions
Generating risk reports for daily review and compliance
Setting and enforcing risk limits across multiple accounts or strategies
The Process
The risk pipeline calculates position sizes, validates trades, monitors exposure, enforces drawdown limits, and generates risk reports.
Task is about portfolio management, not trading (use portfolio skills)
Task is about financial analysis (use analysis skills)
You need to analyze trade results (use analytics skills)
Task is about risk management (use risk skills)
You don't have trading capital
Task requires financial advice (consult advisors)
Red Flags
Position size exceeds risk parameters: Risk manager failed or parameters incorrect; reject trade and investigate why parameters allowed excessive sizing
Portfolio drawdown approaching or exceeding limit: Strategy may be underperforming in current market regime; consider pausing trading or adjusting parameters
Correlation check detects high correlation (>0.7): Portfolio lacks diversification; reject additional similar trades or reduce existing positions
Total exposure exceeds maximum set for account: Position limits not being enforced; implement strict exposure caps across all incoming trades
Margin level drops below maintenance requirements: Leverage too high; issue margin call or automatically reduce exposure
Risk calculations return zero or NaN: Data quality issue or calculation error; verify inputs and implementation
Multiple position types from same strategy: Strategy concentration risk; implement strategy-level exposure limits
Verification
Verification covers position sizing accuracy, trade validation consistency, exposure tracking, drawdown controls, and notification delivery.
Position Sizing Verification
Lot size calculated correctly using risk formula
Position size respects account balance and risk percentage
Pip value correctly applied for different currency pairs
Results match manual calculations for spot check
Trade Validation Verification
All risk checks applied consistently to incoming trades
Trade approvals match expected risk profile
Rejected trades logged with proper reasons
Risk parameters configurable without code changes
Exposure Monitoring Verification
Total exposure tracked across all positions
Long/short exposure tracked separately
Net exposure calculated correctly
Exposure limits enforced with appropriate alerts
Drawdown Control Verification
Drawdown calculated using correct formula (equity vs balance)
Drawdown checks implemented before new trades
Halt conditions properly trigger at set thresholds
Drawdown metrics logged to Notion for audit
Integration Verification
Slack notifications sent on risk events
Notion risk reports created on schedule
Trade validation database records updated
Risk reports include all required metrics for review
Process
Analyze the task requirements
Apply domain expertise
Verify output quality
Anti-Rationalization Table
Rationalization
Reality
"I will cut losses later"
Later never comes. Set stop-losses before entering any trade.
"This time is different"
It never is. Follow your strategy, not your emotions.
"I do not need to journal"
Journaling reveals patterns in your behavior. Track every trade.
