Cash-Settled Bet Divestment GUI for Simplified Odds Trading
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Solution Overview
Problem
Conducting trades in odds-based markets is difficult for even experienced individuals, and existing derivatives markets are complex, making it challenging to capitalize on market beliefs rather than event outcomes.
Innovation Solution
A system and method for processing trades contingent on odds-based markets, involving data processing terminals that receive forecasts and investment amounts, register trades, and confirm payoffs or liabilities based on odds, with settlement mechanisms using median or trimmed mean calculations to determine fair settlement prices.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If derivatives markets are used to capitalize on market beliefs, then trading profitability is improved, but market complexity increases making trades difficult to conduct
Solution Approach 1:
The patent introduces a futures contract as an intermediary product that mediates between traders' beliefs about market outcomes and the actual odds-based market. The futures contract allows traders to express and trade their beliefs about future odds without directly participating in the complex odds-based market, thereby simplifying the trading process while maintaining profitability opportunities.
Solution Approach 2:
The patent transforms the complex odds-based market into a simpler futures market by changing the fundamental trading parameter from odds to fixed prices. The futures contract specifies a fixed strike price and outcome, converting the variable odds structure into a fixed-price structure that is easier to trade and understand, while still capturing the essence of market beliefs.
2Ease of operation
If cash-settled futures contracts are used, then physical delivery requirements are eliminated, but settlement price manipulation risks increase
Solution Approach 1:
The patent introduces a trusted clearinghouse as an intermediary that acts as the counterparty to all futures contracts. The clearinghouse receives funds from losing traders and distributes them to winning traders, eliminating direct peer-to-peer settlement risks. This intermediary structure simplifies the settlement process while ensuring price integrity through the clearinghouse's oversight and fund management.
Solution Approach 2:
The patent implements an automated matching system that automatically matches buyers and sellers of futures contracts based on their price and outcome preferences. The system self-services the trading and settlement process by automatically calculating payoffs, transferring funds, and updating positions without manual intervention, thereby simplifying operations while maintaining reliability through consistent rule-based execution.
Data Source
AI summary
A method and system are described for creating an exchange for futures products for odds markets based on binary outcomes. The futures product is based on the value of a particular fixed index or an exchange delivery settlement price in odds form, as recorded or computed at the end of a pre-assigned event or time-horizon. A particular use of this product would be on an exchange for sporting events, where for a given event, an identical interface to that which would currently be available for odds markets is made available, but which would be settled differently from the former, in such a manner as to allow investors to take positions on the movement of the odds without exposure to the final outcome of the event.