System Congestion Risk

System congestion risk occurs when the volume of incoming orders exceeds the processing capacity of an exchange's matching engine. This leads to increased latency, delayed order execution, and potentially the failure of trades.

During extreme market events, congestion can cause the order book to become disconnected from reality, leading to unpredictable price jumps. Traders must manage this risk by monitoring exchange health metrics and having contingency plans for when the system is under stress.

This often involves adjusting order sizes or pausing trading until the congestion subsides. It is a critical operational risk that can have severe financial consequences for those who are not prepared.