Lightspeed Financial Service Group’s house risk policy is designed to be prudent yet not severely restrictive, thus allowing our clients the ability to trade and manage their portfolios. We are able to do this by using sophisticated risk management technology that provide tools for the risk department to monitor client portfolio risk on a real time basis. In addition, we continuously test our risk parameters using historical data and adjust them proactively as markets are changing – which has the dual impact of helping to protect our clients as well as protect the firm.
Our philosophy in terms of managing risk is that of strong client engagement. When we identify risk in portfolios that concern us, we attempt to inform clients, discuss the risk with them and assist them to manage the risk – as the best course of action is typically that which a client takes themselves.
Below is a summary of the house risk policies as of Jan, 2021. Please note that the risk parameters can change at any time and we cannot guarantee that the website will be up to date.
Note that this is a summary of LFSG’s internal risk policy. The clearing firm may have their own risk measures and addons.
Accounts that are designated as Day Trading accounts will usually be allowed 4x leverage on most stocks over $3. Stocks that are trading less than $3 do not qualify for leverage. The leverage factor for highly risky stocks is determined each day by the risk department based on an algorithm using recent history of the stock as well as any current large movement in the stock. The leverage factor for highly risky stocks can vary between 1x and 3x depending on their recent volatility.
LFSG’s house policy includes several portfolio level risk shocks. An account is expected to have enough equity to cover the risk of these shocks. The portfolio risk shocks are both based on parallel market moves across the board as well as Standard deviation moves for each individual symbol. The underlying price shocks are accompanied by an upward shock of implied volatility as well.
The concentration measure limits the risk in a portfolio that is highly concentrated in a single name. For this we shock each symbol in the portfolio by a percentage based on the market cap of the symbol. The shocks vary from +/- 15% for mega cap stocks to +/- 75% for micro-cap stocks. In each case we also shock implied volatility by +25%
. LFSG also monitors liquidity risk to ensure accounts do not have excessively large positions in illiquid stocks. Stock positions representing a large percentage of the average daily volume may be subject to additional liquidity exposure requirements. LFSG also monitors the total number of option contracts net short in a portfolio and may impose additional requirements is such positions represent a large percentage of the options liquidity in the market.
In addition, LFSG may evaluate a portfolio’s 99 percentile Value at Risk based on its full revaluation, historical simulation model