Dynamic Price Improvement in Electronic Trading Systems
Find Innovative SolutionsGenerate Solutions
Solution Overview
Problem
Electronic trading systems restrict traders to submitting bids and offers within predetermined pricing increments, limiting their ability to improve prices competitively.
Innovation Solution
Implementing a dynamic price improvement system that allows traders to submit orders with price improvements at fractions of the standard increment, with adjustable price improvement levels and timestamps to maintain position in the trading stack, enabling flexible price adjustments based on market conditions.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If traders submit bids and offers at predetermined pricing increments, then the pricing structure remains simple and manageable, but traders cannot improve prices competitively beyond fixed intervals
Solution Approach 1:
The pricing increment is segmented into multiple discrete levels (e.g., 1/8, 1/4, 1/2 of the standard increment). Traders can select specific segments based on their competitive needs, allowing price improvement in fractional amounts rather than requiring full increment changes. This segmentation enables competitive pricing flexibility while maintaining an organized, manageable pricing structure through defined discrete options.
Solution Approach 2:
The system transitions from static predetermined pricing to dynamic price improvement levels. Traders can adjust their price improvement level dynamically based on market conditions, competition, and trading strategy. The pricing structure adapts to varying market needs while maintaining operational manageability through system-enforced level constraints.
2Ease of operation
If traders are allowed to submit orders with dynamic price improvement levels, then trading flexibility and competitiveness improve, but system complexity increases
Solution Approach 1:
The system introduces a price improvement level parameter that traders can adjust to change their order's pricing behavior. By modifying this single parameter, traders gain flexible price improvement capability without needing to redesign their entire ordering process. The system manages complexity by providing predefined parameter options rather than requiring custom calculations.
Solution Approach 2:
The trading system acts as an intermediary that automatically calculates and applies price improvements based on the selected level. Rather than requiring traders to manually compute improved prices, the system mediates the process by taking the base price and applying the appropriate fractional increment automatically, simplifying the trader's interaction while managing the computational complexity centrally.
3Adaptability or versatility
If price improvement levels are made dynamic rather than fixed, then traders can adapt to market conditions, but the ordering and matching process becomes more complex
Solution Approach 1:
Traders pre-select their price improvement level when submitting an order, before market conditions change. This preliminary action allows the system to incorporate the price improvement into the order's effective price immediately, enabling efficient matching against other orders. The adaptability to market conditions is achieved through the trader's advance decision rather than continuous adjustments, maintaining matching efficiency.
Solution Approach 2:
The system creates a copy of the base order with the price improvement already applied. This copied order with the improved price is then used for matching purposes, while the original order parameters remain unchanged for record-keeping and cancellation purposes. This copying mechanism allows dynamic price improvement to be implemented without complicating the core order management and matching processes.
Data Source
AI summary
A system and method is provided to enable traders to price improve on an item at an amount less than a predetermined pricing increment. Traders can improve on the price of the item using different price improvement levels (e.g., four different levels). The price improvement according to the invention is a dynamic price improvement, which enables a dynamic order to maintain a predetermined position in a trading stack relative to other orders in the stack. The dynamic order may maintain its position in the trading stack by adjusting (e.g., increasing or decreasing) its price improvement level depending on market conditions. For example, a dynamic order may increases its price improvement level such that it stays at least one level ahead of the next best order in the trading stack. If the level cannot be further increased, the dynamic order may use its timestamp to maintain its position in the stack.