Leg Risk (Execution Risk)

Category: risk-management

The risk that one side of an arbitrage trade completes while the other side fails or is significantly delayed.

Leg risk is the primary danger in "manual" or low-latency arbitrage. If you buy on Exchange A and Exchange B experiences an API timeout, you are left with a "naked" position exposed to market volatility. High-frequency systems use atomic-swap logic or simultaneous routing to mitigate this.

Common Examples

• We mitigated leg risk by utilizing a dedicated cross-exchange liquidity bridge that forces both sides of the trade to execute within the same clock-tick.
• A massive API latency spike during the Friday market open left our desk with significant leg risk, requiring an immediate hedge to neutralize the exposure.