Curriculum·Graduate·G906
Live Risk and Kill Switches
Infinium Capital Management, February 2010. Infinium put live a new automated strategy, meant to trade an energy ETF against crude oil futures, after only one to two hours of back-testing; within its first seconds it malfunctioned and sent 6,767 orders in about three seconds, and NYMEX later fined the firm for failing to supervise, test and control it.
Lesson 1 opens on
Infinium Capital Management, February 2010
On 3 February 2010 Infinium put a new automated strategy, meant to trade an energy-based ETF against crude oil futures, live for the first time; its final version had been written the night before with only one to two hours of back-testing, against a protocol that called for simulated trading and six to eight weeks of back-testing.m.45 dollars before the remaining 2,155 orders were canceled.
The lessons
- G906-01The kill switch that stops it faster than a humanExplain that a malfunctioning algorithm fails at machine speed, faster than a human can reactabout 34 min · opens on Infinium Capital Management, February 2010
- G906-02Risk limits and the loss your model said was impossibleExplain that a risk system built on 'this cannot happen' fails when a gap makes it happenabout 34 min · opens on FXCM and the Swiss franc, 15 January 2015
- G906-03Your algorithm's market impact is your responsibilityExplain that the operator is responsible for what their algorithm does to the marketabout 34 min · opens on Navinder Sarao, 2010 to 2015
- G906-04Running strategies on other people's capitalExplain that trading on a firm's capital carries counterparty and incentive risk, not just market riskabout 35 min · opens on Forex Capital Trading (Forex CT), 2017 to 2019