Risk management for trading bots: drawdown, exposure and stops

Exposure: how much can be open at once

Exposure is the total position size your bot may hold. A per-bot cap stops a strategy that averages down, such as grid or DCA, from stacking up unlimited lots in one direction. A per-symbol cap does the same across all the bots trading one instrument.

Decide the cap from the loss you can accept, not from the margin your broker allows. Leverage lets you open far more than you should hold.

Drawdown: how far down you are willing to go

Drawdown is the fall from a peak in your account value. An account-wide drawdown limit tells the system to stop trading once the account has fallen by a set percentage, whatever any single bot thinks.

A useful rule of thumb is to set it at a level where you could still recover with sensible trading. Losing half an account needs a 100% gain to return to even, so deep drawdowns are far harder to climb out of than they look.

Equity stops and take-profits

A stop based on account equity (for example, close the position if floating loss reaches a set percentage of equity) scales with the account. A fixed price stop does not. Pair it with a take-profit so winning trades are closed on purpose.

Limits for time and news

Weekends and daily market breaks create price gaps, and thin liquidity around them widens spreads. Some strategies can close positions before a break or suppress new entries when the spread is wide. Check which of these options your strategy has, and use them.

Review on a schedule

Markets change, so settings that worked last month may not fit this one. Look at your bots on a regular schedule, compare real results with what you expected, and change one thing at a time so you can tell what helped.