Risk Management
Overview
GX AI Trading Vaults implement multiple layers of risk management to protect user capital. Every trade proposed by the AI must pass through a deterministic Rust-based risk validator before execution. The system includes circuit breakers, automatic pause mechanisms, and a paper trading mode for validation.
Risk Validator (Layer 4)
The risk validator is a hard-coded Rust module that acts as the final gate before any order is sent to execution. It enforces the following checks on every trade:
| Check | Description | Action on Failure |
|---|---|---|
| Leverage Limit | Order leverage <= tier maximum | Trade rejected |
| Position Size | Order size <= tier equity percentage | Trade rejected |
| Stop-Loss Required | Every position must have a stop-loss | Trade rejected |
| Stop-Loss Distance | SL within reasonable ATR-based range | Trade rejected |
| Daily Loss Budget | Day’s cumulative loss < daily limit | Trade rejected |
| Drawdown Threshold | Current drawdown < tier maximum | Vault paused |
| Concentration Limit | No single asset > 60% of equity | Trade rejected |
| Correlated Exposure | Combined exposure to correlated assets capped | Trade rejected |
The risk validator cannot be bypassed by the LLM. If any rule is violated, the trade is rejected and the rejection is logged with the specific rule that failed.
Circuit Breakers
Automatic circuit breakers halt trading when abnormal conditions are detected.
| Circuit Breaker | Trigger | Action |
|---|---|---|
| Price Move | Mark price moves >10% in 5 minutes | All trading paused for 15 minutes |
| Drawdown Limit | Vault drawdown exceeds tier maximum | Vault enters reduce-only mode |
| Daily Loss | Cumulative daily loss exceeds tier limit | No new positions until next UTC day |
| Oracle Failure | Price feed stale for >60 seconds | All trading paused until feed resumes |
| Consecutive Losses | 5+ consecutive losing trades | AI pauses for 30 minutes, recalibrates |
| Execution Failure | 3+ failed order submissions | Trading paused, alert sent |
Automatic Pause (Max Drawdown)
When a vault’s equity drops below the maximum drawdown threshold for its tier, the following sequence executes:
- All open orders are cancelled immediately
- The vault enters reduce-only mode (can only close existing positions)
- No new positions can be opened
- The user receives a notification
- The vault remains paused until the user manually reactivates it or withdraws
| Tier | Max Drawdown | Auto-Pause Trigger |
|---|---|---|
| Capital Guard | 10% | Vault equity drops to 90% of deposit |
| Growth | 15% | Vault equity drops to 85% of deposit |
| High Octane | 25% | Vault equity drops to 75% of deposit |
Paper Trading Mode
Every new strategy undergoes a mandatory paper trading validation period before being deployed with real capital.
Paper Mode Specifications:
| Parameter | Value |
|---|---|
| Duration | Minimum 7 days |
| Data Source | Live market data (real-time) |
| Execution | Simulated fills at market price + estimated slippage |
| Metrics Tracked | Sharpe ratio, max drawdown, win rate, profit factor |
| Graduation Criteria | Positive PnL over 7 days with drawdown < tier limit |
Paper mode uses identical AI logic, risk validation, and data pipelines as live trading. The only difference is that orders are simulated rather than submitted to the GXCore matching engine.
”Do Nothing” as First-Class Action
The AI is explicitly designed to hold when conviction is low. Research shows that “Monk Mode” (doing nothing) frequently outperforms active models in uncertain markets:
- If the LLM’s confidence score < 0.3, the AI holds and logs its reasoning
- Every action includes a confidence score (0-1) and a reasoning annotation
- The AI is rewarded for avoiding trades in high-uncertainty environments
- Hold decisions are logged with the same detail as trade decisions for transparency
Security Layers
Custody
GX Core’s API Wallet mechanism ensures the AI agent can trade but cannot withdraw. Withdrawal requires the user’s master key, enforced at the GX Chain protocol level.
Risk Isolation
Each vault operates independently with its own:
- API wallet (separate key per vault)
- Risk parameters (based on selected tier)
- Position tracking (no cross-vault exposure)
- Circuit breaker state
Monitoring
- 24/7 automated monitoring of all active vaults
- Real-time alerts for circuit breaker triggers
- Daily automated reconciliation of vault balances
- Weekly performance reports available in the user dashboard
User Controls
Users retain the following controls at all times:
| Action | Description |
|---|---|
| Withdraw Anytime | Full withdrawal with immediate position closure |
| Pause Vault | Manually pause AI trading without withdrawing |
| Change Tier | Switch risk tier (requires closing all positions first) |
| View Trades | Full transparency into every trade with reasoning |
| Export History | Download complete trade history as CSV |