Customized Probability Distribution Trading Interface
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Solution Overview
Problem
Current electronic trading systems lack an efficient tool for trading based on probability distributions of underlying asset prices, failing to provide users with a means to customize and utilize these distributions for optimizing trades.
Innovation Solution
A computer-implemented system with a graphical user interface that calculates and displays market-implied probability distributions, allows users to customize these distributions, and proposes optimal trading strategies based on the customized probabilities, including option orders and risk measurements, which can be submitted to an electronic marketplace.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If no probability distribution customization tool is provided, then the trading system remains simple, but users cannot optimize trades based on customized probability distributions
Solution Approach 1:
The patent introduces a probability distribution customization module as an intermediary between the market data and the trading strategy generation. This module allows users to adjust probability distributions without requiring changes to the core trading engine, thereby adding adaptability while containing complexity within a modular component.
Solution Approach 2:
The system is divided into distinct functional modules: market data processing, probability distribution calculation, user customization interface, and trading strategy generation. This segmentation allows the customization feature to be added independently without overwhelming system complexity, as each module handles a specific aspect of the functionality.
2Productivity
If real-time probability distributions are calculated and displayed, then trading decisions can be optimized, but computational resources and time are consumed
Solution Approach 1:
The system pre-calculates probability distributions based on current market data and displays them before the user makes trading decisions. This preliminary calculation allows users to review and customize distributions in advance, reducing the time pressure during actual trading execution and improving overall trading efficiency.
Solution Approach 2:
The patent replaces manual probability assessment with automated computational algorithms that calculate probability distributions from market data. This substitution of mechanical calculation with automated systems reduces the time and cognitive resources required for traders to assess probabilities manually.
3Ease of operation
If users can customize probability distributions, then trading strategies can be optimized for user-specific views, but the interface and operation become more complex
Solution Approach 1:
The system provides automated trading strategy recommendations based on user-customized probability distributions without requiring users to manually construct complex trading plans. The system serves itself by automatically generating optimal trades from the user's probability inputs, simplifying the user interface while maintaining customization capabilities.
Solution Approach 2:
The customization interface allows users to modify probability distribution parameters through simple adjustments rather than complex configurations. By focusing on key parameters that have the most impact on trading decisions, the system maintains ease of operation while providing powerful customization functionality.
Data Source
AI summary
Computer-implemented methods and systems, including a user interface, that (a) calculate and display a graphical representation of a market implied probability distribution for the future prices of a tradable asset, which is derived from real time prices of the options on the asset, (b) permit the user to customize the market implied probability distribution graph to reflect the user's own view on the probability that the future price of the asset will be within a price range, and (c) propose an optimal trading strategy implemented as a combination of option orders, which strategy is optimized to be profitable assuming the customized probability distribution (if any). The combination orders may be modified and/or added to by the user.