Automated Spread Trading With Aggressive Gap Price Leaning
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Solution Overview
Problem
Conventional automated trading tools for spread trading strategies in electronic trading environments limit the degree of risk a trader can apply, leading to missed opportunities for profit due to re-pricing orders and reliance on price levels with sufficient quantity, thereby reducing the chances of getting 'legged up'.
Innovation Solution
An automated trading tool that allows traders to configure a level of aggressiveness, enabling it to lean on prices without associated quantity (gaps) in the market, allowing for more profitable trades by quoting limit orders at more favorable prices.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If conventional automated trading tools use standard spread trading strategies, then order filling reliability is maintained, but trading speed and profitability are reduced due to reliance on price levels with sufficient quantity
Solution Approach 1:
The system dynamically adjusts the leaned-on price based on market conditions and trader-configured aggressiveness levels. Instead of using a fixed price level, the system can shift between conservative and aggressive pricing strategies in real-time, allowing faster order placement while managing fill reliability through adaptive rather than static pricing.
Solution Approach 2:
The system changes the price parameter by leaning on prices without associated quantity (gaps in the market) rather than relying on traditional price levels with sufficient quantity. This parameter change enables faster order filling by targeting price levels that are more likely to be filled quickly, even though they carry higher risk.
2Productivity
If traders lean on prices without associated quantity (gaps), then trading profitability increases, but the risk of getting 'legged up' increases
Solution Approach 1:
The system performs preliminary action by allowing traders to pre-configure their desired level of aggressiveness before market conditions change. This preset configuration enables the system to automatically select appropriate price levels to lean on, balancing profitability opportunities with risk management based on the trader's pre-established risk tolerance.
Solution Approach 2:
The system dynamically adjusts the degree of aggressiveness based on real-time market conditions and the trader's configured risk tolerance. The leaned-on price can shift between more conservative and more aggressive positions depending on current market state, allowing the system to capture profitable gaps while managing risk through adaptive rather than fixed positioning.
3Manufacturing precision
If automated tools re-price orders to achieve desired spread price, then spread trading accuracy is maintained, but trading speed decreases and opportunities are missed
Solution Approach 1:
The system performs preliminary action by pre-calculating and pre-positioning orders at aggressive price levels before market conditions change. Instead of waiting to re-price orders after market moves, the system proactively places orders at prices that are more likely to fill quickly, capturing opportunities before competitors can react.
Solution Approach 2:
The system dynamically adjusts order pricing strategies based on real-time market conditions rather than using static re-pricing. The aggressiveness level can change dynamically to lean on price gaps when beneficial, while maintaining spread accuracy through adaptive pricing that responds to market state rather than relying on fixed re-pricing cycles.
Data Source
AI summary
System and method for aggressively trading a spread trading strategy in an electronic environment are provided herein. According to the example embodiments, a trader may configure the automated trading tool to trade as aggressively as possible by leaning on a price without an associated quantity. This allows a trader to possibly obtain a more profitable price as well as get filled faster. Traders submit an order for a spread and the automated trading tool calculates the quote order price based on a defined level of aggressiveness, the leaned on price, and the desired spread price. Based on the level of defined aggressiveness and the gap in the market, the automated trading tool may lean on a mildly, moderately, or extremely aggressive price.