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Risk Limits

In short

Configurable guardrails that prevent excessive concentration, drawdown, or exposure in your portfolios

Risk limits are automatic guardrails for your portfolio. Set a max position size (e.g., no single stock above 25%), max sector exposure, max drawdown, and minimum cash reserve. Hard limits block trades that would breach them. Soft limits warn you but let you proceed. Think of them as circuit breakers for your investment decisions.

The P0 Risk Limits Engine enforces portfolio-level and asset-class-level constraints. Every trade proposal passes through a pre-trade gate that checks against your configured limits. A continuous Celery monitor detects breaches caused by market moves (e.g., a position growing past 25% due to a rally). Defaults are seeded from your risk assessment score. Tier-based ceilings prevent removing all guardrails. All changes require password confirmation and are audit-logged.

Related concepts

  • Trailing Stop — A trailing stop follows your stock's price upward. If the stock rises from $100 to $150, a 15% trailing stop moves from $85 to $127.50. If the price then drops to $127.50, it triggers a sell — locking in a $27.50 profit instead of riding it back down. The stop only moves UP, never down.
  • Risk Tolerance — Risk tolerance is how well you can sleep when your portfolio drops 30%. Some investors can stay the course; others panic-sell. High risk tolerance = more stocks. Low risk tolerance = more bonds and defensive assets.
  • Diversification — If you put all your money in one stock and it crashes, you lose everything. Spread it across 20 different stocks, sectors, and even countries — when one falls, others may rise, protecting your overall wealth.
  • Maximum Drawdown — If your portfolio hit $10,000 then fell to $6,000 before recovering, the max drawdown is 40%. It measures the worst experience a real investor would have endured.
  • Portfolio Volatility — Portfolio volatility measures how much your combined investments bounce around. Unlike individual stock volatility, it accounts for diversification — when some holdings go up while others go down, they partially cancel out, reducing overall portfolio risk.