The Risk of Trading: Mastering the Most Important Element in Financial Speculation

RESTORATION REQUIREMENTS

During your scenario testing review, I hope your transition of thinking about the business of trading rather than actually trading is working effectively. In the end, our business is about entering and exiting trades with the goal of taking advantage of edge in the markets. To perform this function effectively and consistently, traders have to assess their business goals and ask themselves what is an acceptable period of time that trading operations can be temporarily halted within the confines of the business plan. In essence, how quickly do you need to be back in operation? More precisely, what aspects of your business do you need to have back in operation and in which order of priority?

One might think that the ability to trade is the most important element of trading. No argument from most traders. For managed firms, there may be other resources or technologies that are critical during the monthly reporting cycle. Hedge funds may be required to meet regulatory requirements or face severe penalties. While the revenue engine is always a top priority, do not discount other critical operational needs and how quickly they need to be restored.

The restoration time frame may also be affected by other seasonal factors. Some traders have business continuity plans that normally require 15-minute restoration time frames for their trading platform while during the holiday weeks of December, they can have a two-week outage and not be too concerned. A loss of a critical ...