Soft Stop

A soft stop is a flexible risk control point where trading is paused or reviewed, not automatically halted, allowing managers to reassess strategy.

What Is a Soft Stop?

A soft stop is a predefined threshold in trading or investing where activity may be paused or reviewed due to underperformance or risk concerns, but is not automatically halted. Unlike a hard stop, which triggers a mandatory exit or liquidation, a soft stop offers flexibility allowing managers or traders to reassess the situation, justify continued activity, or make adjustments before taking further action.

How Does a Soft Stop Work?

Soft stops are typically set based on factors like portfolio drawdown, volatility, or deviation from expected performance. When this threshold is reached, the manager or trader is expected to review the strategy’s behavior, analyze market conditions, and decide whether to continue, pause, or adjust the position. This process is discretionary and often outlined in a fund’s mandate or risk policy, with oversight from risk committees or allocators.

Why Are Soft Stops Important for Investors and Fund Managers?

Soft stops serve as early warning systems in risk management. They:

  • Encourage disciplined monitoring of performance without forcing immediate action

  • Allow for professional judgment and flexibility in response to unusual market events

  • Help prevent emotional or reactionary decisions by prompting structured review

  • Support transparency and accountability when shared with allocators or oversight committees

Example: Soft Stop in Practice

A multi-strategy fund sets a soft stop at a 7% drawdown from peak value. If the portfolio drops by 7%, trading is paused and the investment team reviews current positions, recent market events, and risk exposures. After discussion, the team may choose to continue, adjust exposures, or escalate to a hard stop if risks remain elevated.

When Should You Use a Soft Stop?

Soft stops are most useful:

  • In quantitative, macro, or multi-strategy funds where flexibility is needed

  • When managing portfolios that require oversight but benefit from discretion

  • As part of a layered risk management framework, alongside hard stops and other controls

  • Whenever early intervention and review can help prevent larger losses or operational errors

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Whether you’re allocating capital or managing it — we’re here to help you move forward with clarity and confidence.

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Investing in alternative strategies involves risk. Past performance is not indicative of future results. The value of investments can go down as well as up, and you may not get back the amount originally invested. These opportunities are intended for sophisticated or qualified investors who understand the risks involved. Please seek independent financial advice before making any investment decisions.

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Curated access to exceptional investment strategies, built on trust and long-term alignment.

© 2022–2025

Confluence Group

Investing in alternative strategies involves risk. Past performance is not indicative of future results. The value of investments can go down as well as up, and you may not get back the amount originally invested. These opportunities are intended for sophisticated or qualified investors who understand the risks involved. Please seek independent financial advice before making any investment decisions.

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