Risks in algorithmic trading strategies can basically be of two things: risks that cause money loss and risks that cause illegal/forbidden behavior in markets that cause regulatory actions. Let's take a look at the risks involved before we look at what factors lead to increasing/decreasing these risks in the business of algorithmic trading.
Differentiating between the types of risk and risk factors
Risk of trading losses
This is the most obvious and intuitive one—we want to trade to make money, but we always run through the risk of losing money against other market participants. Trading is a zero-sum game: some participants will make money, while some will lose money. The amount that's lost by the losing participants...