Guide
Risk Gates for Automated Arbitrage
risk gates • automated arbitrage risk management
Automated execution must be constrained by explicit rules. The primary phrase, risk gates, means guardrails that prevent a strategy from acting outside acceptable boundaries. In crypto, those boundaries should account for venue reliability, liquidity conditions, maximum exposure, and operational failure modes.
Begin with exposure caps. Define the maximum amount of capital that can be active per asset and per venue. Exposure caps limit blast radius when an exchange has an outage, when liquidity evaporates, or when a transfer is delayed. Next, implement sanity checks: reject trades when the spread is below a minimum net threshold, when fees spike, or when the order book shows abnormal gaps.
Add execution pauses tied to monitoring. If latency rises, if API errors increase, or if withdrawals are disabled, your system should automatically reduce risk or stop. This is a practical application of automated arbitrage risk management: it accepts that systems degrade and designs safe failure behavior.
Operational processes are part of the gate. Require separate approval for new venues, keep audit logs of parameter changes, and run small‑size tests before scaling. Use allow‑lists for destinations and rotate API keys. Finally, treat risk gates as living configuration: review them after incidents and adjust thresholds to match the real environment.
For a complete view, connect these controls with Fees & Slippage modeling and select the plan that matches your execution needs on Pricing.
Begin with exposure caps. Define the maximum amount of capital that can be active per asset and per venue. Exposure caps limit blast radius when an exchange has an outage, when liquidity evaporates, or when a transfer is delayed. Next, implement sanity checks: reject trades when the spread is below a minimum net threshold, when fees spike, or when the order book shows abnormal gaps.
Add execution pauses tied to monitoring. If latency rises, if API errors increase, or if withdrawals are disabled, your system should automatically reduce risk or stop. This is a practical application of automated arbitrage risk management: it accepts that systems degrade and designs safe failure behavior.
Operational processes are part of the gate. Require separate approval for new venues, keep audit logs of parameter changes, and run small‑size tests before scaling. Use allow‑lists for destinations and rotate API keys. Finally, treat risk gates as living configuration: review them after incidents and adjust thresholds to match the real environment.
For a complete view, connect these controls with Fees & Slippage modeling and select the plan that matches your execution needs on Pricing.