Electronic Trading System Tradeable Price Computation
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Solution Overview
Problem
Electronic trading systems face challenges in efficiently matching and executing trades, particularly in markets with low liquidity or unusual assets, where traditional pricing methods fail to account for various order factors and market conditions, leading to inefficiencies and incomplete trade execution.
Innovation Solution
An electronic trading system calculates a 'tradeable price' based on standard rules, which is disclosed to traders and used to execute or negotiate trades, optionally with confirmation, and can be adjusted or used as a suggested price for further negotiation, aiming to balance bids and offers and encourage order execution.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If traditional pricing methods are used in low-liquidity markets, then the system complexity remains low, but trade execution efficiency deteriorates and pricing accuracy becomes insufficient
Solution Approach 1:
The patent introduces a computed tradeable price as an intermediary mechanism that mediates between disparate bids and offers in illiquid markets. This computed price, derived from multiple order factors and market conditions, serves as a neutral reference point that facilitates trade execution without requiring direct complex matching between all participant pairs, thereby improving efficiency while managing system complexity.
Solution Approach 2:
The system dynamically adjusts pricing parameters by incorporating multiple order factors (price, size, urgency, etc.) and market conditions into the computation of tradeable prices. This parameter-based approach allows the system to adapt to varying market liquidity conditions and order characteristics, improving pricing accuracy and trade execution efficiency without requiring a completely new pricing framework.
2Measurement precision
If computed tradeable prices are calculated based on multiple order factors and market conditions, then pricing accuracy improves, but calculation complexity and processing time increase
Solution Approach 1:
The system performs preliminary calculations by pre-processing and storing key order factors and market condition parameters before actual trade execution. This allows the computed tradeable price to be rapidly determined during trading by referencing pre-computed values and applying simple adjustment formulas, rather than performing complex calculations in real-time, thus maintaining pricing accuracy while reducing calculation time.
3Productivity
If the system encourages negotiation and order modification, then trade execution completeness improves, but transaction time and market volatility increase
Solution Approach 1:
The system implements periodic computation of tradeable prices at scheduled intervals rather than continuously updating them. This periodic action provides traders with stable price references for negotiation while preventing excessive price fluctuations that would increase volatility. The periodic updates encourage orderly negotiation and order modification without creating continuous market instability, balancing trade execution completeness with transaction time efficiency.
Data Source
AI summary
Traders are notified of a computed tradeable price for an object of commerce. The computed tradeable price is calculated by a computer in conformance to a standard published to traders in a market for the object of commerce. The standard specifies rules for calculating the tradeable price based on orders received or trades executed in the market. Based at least in part on the computed tradeable price, trades are executed or negotiated, or negotiating offers are exchanged among the traders.