Learn Algorithmic Trading

Maximum trade size

This risk metric measures what the maximum possible trade size for a single trade for the trading strategy is. In our previous examples, we use static trade sizes, but it is not very difficult to build a trading strategy that sends a larger order when the trading signal is stronger and a smaller order when the trading signal is weaker. Alternatively, a strategy can choose to liquidate a larger than normal position in one trade if it's profitable, in which case it will send out a pretty large order. This risk measure is also very helpful when the trading strategy is a gray box trading strategy as it prevents fat-finger errors, among other things. We will skip implementing this risk measure here, but all we do is find a distribution ...