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RiskGuard

Overview

RiskGuard is RealizeAlpha’s advanced risk management engine designed to protect capital by enforcing portfolio-level safety rules. Originally developed for the Agentic Trading system, RiskGuard now extends its protection to manual trading, providing a safety net against impulsive or high-risk decisions.

Manual Trading Protection

RiskGuard integrates directly into the manual trading workflows for Stocks, Options, and Crypto. Before an order is previewed, the system validates the proposed trade against a set of risk rules defined in the backend.

Workflow

1. Validation: When a user attempts to preview an order, the app calls the validateTrade Cloud Function.
2. Risk Assessment: The backend evaluates the trade against current portfolio state, checking for:
   • Concentration Risk: Preventing over-exposure to a single asset.
   • Sector Risk: Limiting exposure to a specific market sector.
   • Drawdown Protection: Restricting trading during significant portfolio drawdowns.
   • Volatility Checks: Warning against trading in extreme volatility conditions.
3. User Feedback:
   • Safe: If the trade passes all checks, the order preview proceeds normally.
   • Risk Detected: If a risk is identified, a Warning Dialog appears, detailing the specific risk (e.g., “Portfolio concentration for AAPL exceeds 20%”).

Override Capability

RiskGuard for manual trading is designed to be advisory, not blocking.

• Proceed Anyway: Users can acknowledge the warning and choose to proceed with the trade.
• Cancel: Users can back out to adjust their order quantity or strategy.

Persistent Awareness

If a user chooses to override a RiskGuard warning:

• A Warning Banner (amber color) appears at the top of the order form, reminding the user of the active risk alert (e.g., “RiskGuard Warning: High Concentration”).
• This banner persists until the order is placed or the screen is reset.

Analytics & Auditing

To improve risk models and track user safety:

• Override Logging: Every time a user overrides a RiskGuard warning, an event (risk_guard_override) is logged to Firebase Analytics.
• Data Points: The log includes the symbol, the specific risk reason, and the order type.

Automated Trading Protection

For the Agentic Trading system, RiskGuard acts as a hard gatekeeper.

• Strict Enforcement: Unlike manual trading, automated agents cannot override RiskGuard by default. If a trade fails validation, it is rejected immediately.
• Configuration: Risk parameters for automated trading are configurable in the Agentic Trading Settings.
• Skip Option: For specific high-conviction strategies, users can enable skipRiskGuard in the configuration to bypass these checks (use with caution).

Architecture

RiskGuard logic is centralized in the Firebase Cloud Functions (functions/src/riskguard-agent.ts), ensuring consistent rule application across all trading interfaces (Mobile App, Web, Automated Agents).

Dynamic Position Sizing

RiskGuard includes a Dynamic Position Sizing feature that automatically calculates the optimal trade size based on risk parameters.

• Volatility Adjustment: Adjusts position size based on the asset’s volatility (ATR).
• Risk Budgeting: Ensures that the potential loss (based on Stop Loss) does not exceed a fixed percentage of the portfolio (e.g., 1% or 2%).
• Auto-Calculation: When placing an order, users can opt to have the quantity automatically filled based on these risk rules.