In this section, we'll briefly cover pretrade risks for a simple trading system. Pretrade risks are everything that are considered to be risks and analyzed before the order is sent to the exchange. Typically, this is done in the trading engine or order execution engine or order management system. Here we'll consider basic pretrade risk measurements, such as order size and maximum distance for limit prices (that is values that tend to be high/low from the current market price).
The following are the examples of pretrade risk rules:
Limit the order price distance from the current market price
The maximum order value
Total exposure
Number of orders sent per time unit