Operational and additional Transactional limits

Besides stop loss limits discussed above the following limits should also be set:

Inventory age limits

Inventory age limits set the time for which any security is held without being sold. This is to prevent traders from sitting on illiquid positions or positions with an unrecognized loss. The time allowed will depend on the overall purpose of the desk. If the desk is expected to trade in and out of the position quickly, the limits will be on the order of days. If the desk is expected to use long-term strategies then the limit can be on the order of weeks or months.

Concentration limits

Concentration limits prevent traders from putting all the eggs in one basket. They ensure that the traders risk is not concentrated in one instrument or market. For example the equity desk may be limited to a maximum of 3% in any one company. This may also be subject to a limit on total percentage of that company’s equity that may be held.