Order Stream Risk Switching for Low-Latency Electronic Trading
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Solution Overview
Problem
High-frequency trading in financial markets faces challenges in managing trading risk without introducing significant latency, which can result in missed opportunities or increased losses due to rapid market fluctuations.
Innovation Solution
A system and method that process orders to determine trading risk information, allowing for the cessation of order transmission and the initiation of alternative orders to mitigate risk without delaying data stream transmission, using reconfigurable circuitry and controllers to manage data streams and maintain low latency.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If risk management processing is performed on order data, then trading risk control is improved, but transmission latency increases
Solution Approach 1:
The system segments the data stream processing by creating separate functional modules: a data stream receiver that captures incoming orders, a risk analysis module that processes risk information, and a transmitter that sends orders to the market. This segmentation allows risk management to be performed on specific portions of the data stream without blocking the entire transmission path.
Solution Approach 2:
The system performs preliminary risk analysis by determining trading risk information from the data stream before transmission decisions are made. The risk information is calculated in advance, allowing the system to pre-determine whether to transmit, delay, or modify orders based on risk conditions, thereby reducing the time required for real-time decision-making.
Solution Approach 3:
The patent introduces an intermediary processing layer between the data stream receiver and the market transmitter. This intermediary module analyzes risk information and makes transmission decisions without requiring direct intervention in the main transmission path, thus isolating the risk management processing from the critical transmission path and minimizing latency impact.
2Reliability
If order transmission is ceased to control risk, then trading risk is reduced, but trading opportunities are lost
Solution Approach 1:
The system dynamically adjusts transmission behavior based on real-time risk conditions. Instead of a static cease-transmission approach, the system modulates the data stream transmission according to calculated risk information, allowing orders to be transmitted when risk conditions are favorable and delayed or modified when risk conditions deteriorate, thus maintaining trading opportunities while controlling risk.
Solution Approach 2:
The system changes transmission parameters based on risk analysis results. When risk conditions are acceptable, the system transmits orders at normal speed; when risk conditions deteriorate, the system modifies transmission parameters such as delaying transmission, reducing order volume, or adjusting order timing, thereby maintaining risk control while preserving potential trading opportunities.
Data Source
AI summary
Disclosed herein is a system (10) for transmitting a data stream (12). The system (10) is configured to receive the data stream (12). The data stream (12) carries a plurality of orders that are destined for a market (24) configured for electronic trading. The system (10) is configured to transmit the data stream (12) carrying the plurality of orders. The system (10) is configured to process at least the plurality of orders (12) to determine trading risk information (14) indicative of trading risk. The system (10) is configured to determine if the trading risk indicated by the trading risk information (14) satisfies a trading risk condition (16). The system (10) is configured to cease transmitting the data stream (12) carrying the plurality of orders if the trading risk condition is determined to be satisfied and commenced transmitting another data stream (18) destined for the electronic market. Also disclosed herein is a method for transmitting a data stream (12).