Trading Algorithm Authorization via Unique Identifier and Risk Manager

Resolve Bottlenecks,
Find Innovative SolutionsGenerate Solutions

Solution Overview

Problem

In electronic trading systems, users designing trading algorithms may lack sufficient experience to identify and manage the risks associated with their algorithms, leading to potential losses and liabilities, especially when executed in live environments.

Innovation Solution

Implementing a method where a unique identifier is generated for each trading algorithm, which changes upon saving or approval, preventing unauthorized changes and requiring authorization from a risk manager before execution, thereby ensuring controlled and monitored algorithm deployment.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Productivity

If users are allowed to design and execute trading algorithms independently, then trading automation and speed are improved, but risk management and control deteriorate due to insufficient user experience

Engineering Contradiction:

Improvetrading automation speedVSAvoidrisk management

Core Design Contradiction:

ProductivityVSReliability

Solution Approach 1:

A risk manager intermediary is introduced between the algorithm designer and the execution environment. The risk manager receives the trading algorithm, evaluates it for potential risks, and either approves or rejects it before execution. This intermediary layer maintains trading automation speed while adding necessary risk oversight that individual users may lack the expertise to provide.

Inventive Principle:

Principle #24Intermediary (Mediator)

Solution Approach 2:

Risk evaluation and approval actions are performed in advance before the trading algorithm is executed. The algorithm must be submitted and approved by the risk manager prior to deployment in the trading environment. This preliminary risk assessment ensures that potential issues are identified and addressed before real capital is at risk, while still allowing approved algorithms to run automatically at full speed.

Inventive Principle:

Principle #10Preliminary action

2Adaptability or versatility

If trading algorithms can be modified freely, then adaptability to market conditions is improved, but unauthorized changes and errors increase

Engineering Contradiction:

Improvealgorithm flexibilityVSAvoidunauthorized changes

Core Design Contradiction:

Adaptability or versatilityVSObject-affected harmful factors

Solution Approach 1:

The system implements dynamic control where the trading algorithm can be modified, but the ability to execute is dynamically adjusted based on approval status. When an algorithm is submitted for modification, execution is paused until the risk manager reviews and approves the changes. This dynamic approach maintains adaptability while preventing unauthorized or erroneous changes from being executed.

Inventive Principle:

Principle #15Dynamics

Solution Approach 2:

A feedback loop is established where any modifications to the trading algorithm trigger a review process. The risk manager receives notification of proposed changes, evaluates them, and provides approval or rejection feedback. Only after receiving positive feedback can the modified algorithm be executed. This feedback mechanism ensures adaptability while maintaining control over harmful changes.

Inventive Principle:

Principle #23Feedback

3Reliability

If a risk manager approval process is implemented, then risk control is improved, but execution time and complexity increase

Engineering Contradiction:

Improverisk controlVSAvoidauthorization process complexity

Core Design Contradiction:

ReliabilityVSDevice complexity

Solution Approach 1:

The system creates a copy or representation of the trading algorithm for risk manager review, allowing the original algorithm to remain unchanged and ready for execution. The risk manager evaluates the copy and provides approval, which then enables the original algorithm to run. This copying approach simplifies the process by separating the review function from the execution function, reducing complexity while maintaining control.

Inventive Principle:

Principle #26Copying

4Reliability

If algorithm changes are prevented after approval, then execution reliability is improved, but adaptability to new market conditions deteriorates

Engineering Contradiction:

Improveexecution consistencyVSAvoidalgorithm update capability

Core Design Contradiction:

ReliabilityVSAdaptability or versatility

Solution Approach 1:

The system implements periodic review cycles where approved algorithms can be updated through structured intervals. Instead of preventing all changes, the system allows algorithms to be updated periodically through formal submission and approval processes. Between updates, approved algorithms execute consistently without modification. This periodic approach maintains execution reliability while enabling necessary adaptations to new market conditions.

Inventive Principle:

Principle #19Periodic action

Data Source

PatentUS11055774B2Authorization of a trading strategy algorithm

Publication Date: 2021.07.06 TRADING TECHNOLOGIES INTERNATIONAL INC

AI summary

Systems, methods, and computer-readable storage media are provided for authorizing a trading algorithm prior to execution of the trading algorithm. An example method includes receiving a trading algorithm definition associated with a unique identifier and sending the unique identifier to an algorithm server that is operable to execute programming code representing the trading algorithm. The unique identifier may be associated with a trader authorized to execute the programming code. The algorithm server may check the unique identifier prior to execution of the programming code to ensure that the trading algorithm has been authorized.