Basket Trade Allocation System with Wave Slicing
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Solution Overview
Problem
Current automated trading systems do not allow institutional investors to create and execute their own trading programs or allocate trades to specific accounts, limiting their control over portfolio management and trade execution.
Innovation Solution
A system and method that enable clients to create baskets of stock orders, slice them into waves, and allocate executed trades to multiple accounts, with a backend server processing these orders for execution and providing real-time market data updates, allowing for customizable user interfaces and detailed analysis.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Speed
If automated trading systems are used to execute trades, then trade execution speed is improved, but client control over trading programs and trade allocation is lost
Solution Approach 1:
The system segments control by separating the automated execution function (handled by the broker's OMS) from the trading program creation and allocation decisions (handled by the client's software). This allows clients to define their own trading logic while the system automates the actual order placement and account allocation, resolving the contradiction between speed and control.
2Ease of operation
If manual basket trading is used, then client control over trading programs is maintained, but trade execution time increases
Solution Approach 1:
The system introduces an intermediary software layer that sits between the client and the broker's OMS. This intermediary receives client-defined trading programs, automatically generates the appropriate orders, and submits them to the broker for execution. This eliminates the need for manual order entry while preserving client control over the trading logic, thus reducing execution time without sacrificing control.
3Device complexity
If trades are executed as single bulk orders, then execution is simple, but market impact increases
Solution Approach 1:
The system segments large bulk orders into multiple smaller child orders that are executed sequentially or in parallel. The client can define the segmentation strategy (e.g., equal splits, time-based intervals) in their trading program. This reduces the market impact of any single order while maintaining the overall trading objective, resolving the contradiction between execution simplicity and market impact.
4Adaptability or versatility
If trades are allocated to multiple accounts, then portfolio diversification is improved, but allocation complexity increases
Solution Approach 1:
The system enables self-service allocation by allowing clients to define their own allocation rules and preferences in their trading programs. Clients can specify how trades should be distributed across multiple accounts (e.g., equal allocation, proportional to account size, custom rules). The system automatically executes the allocation according to client-defined parameters, eliminating the need for manual allocation processes and reducing complexity while maintaining versatility.
Data Source
AI summary
A system and method where a client creates a basket of intended stock orders, slices the basket into one or more waves of orders, sends trade orders to a broker/dealer for execution, and allocates stocks to one or more client accounts. A backend server receives basket or wave orders, breaks each basket or wave order into individual stock orders, and queues the individual stock orders for submission to an order management system for execution of the order. A market data feed to the client continuously updates the information displayed to the client. The client may strike a basket or wave or individual stock by entering strike information into a client database residing on a client computer. The system also provides for allocation of executed trades to client-specified accounts.