John R Miller

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What is operational risk in trading and how do you mitigate it?

Operational risk is non-market loss from processes, people, and systems: platform crashes, fat-finger errors, API bugs, wrong account routing, or seed-phrase loss. Mitigation stack: (1) People—checklists for entries/exits, four-eyes on big orders, daily pre-mortems; (2) Process—standard operating procedures for rollovers, corporate actions, and news halts; (3) Tech—UPS power, VPS redundancy, hot/cold backups, version control, and automated kill-switches; (4) Custody—2FA/hardware keys, multi-sig for crypto, segregated accounts at reputable brokers; (5) Legal—counterparty due diligence, disaster-recovery contacts, and regulatory compliance. Run quarterly fire-drills: simulate internet outage, exchange freeze, or margin spike—how fast can you flatten risk? Pros: fewer catastrophic mistakes, smoother audits. Cons: time and cost to maintain. Treat ops like a cockpit: redundancy, checklists, and discipline save accounts as surely as good trades.