Automated Trading Engine Threshold Verification
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Solution Overview
Problem
Electronic trading systems face market spikes due to rapid execution of stop orders, which can prevent opposite side orders from entering the market, leading to adverse market effects and uncertainty for traders until exchange decisions are made regarding trade cancellations.
Innovation Solution
An automated trading engine verifies tradable conditional orders to ensure prices do not violate predetermined thresholds, flagging orders outside these thresholds and matching them at adjusted price thresholds to prevent market spikes and maintain market stability.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If stop orders are executed rapidly at limit prices, then trading speed and efficiency are improved, but market stability deteriorates due to cascading stop order triggers
Solution Approach 1:
The system performs preliminary verification of tradable conditional orders against predetermined thresholds before execution. The automated trading engine checks whether executing a stop order would cause the price to move beyond the no-bust range, and prevents execution if it would violate the threshold. This preliminary check stops the cascading effect before it can occur.
Solution Approach 2:
The automated trading engine acts as an intermediary between the stop order execution and the market. It verifies orders against thresholds and flags or rejects orders that would cause price movements beyond the no-bust range, mediating between rapid trading needs and market stability requirements.
2Stability of the object's composition
If trades are cancelled to prevent market spikes, then market stability is improved, but trading reliability deteriorates due to uncertainty for traders
Solution Approach 1:
The system establishes predetermined thresholds (no-bust range) before trading occurs. By verifying orders against these pre-set thresholds, the system provides clear, predictable rules for trade execution or rejection, eliminating uncertainty about when trades will be cancelled.
Solution Approach 2:
The system changes the parameter of price verification by comparing execution prices against predetermined thresholds rather than allowing unconditional execution. This parameter change ensures trades only execute within acceptable price ranges, maintaining both stability and reliability.
3Quantity of substance
If opposite side orders are allowed to enter the market during stop order cascades, then market liquidity is improved, but the speed of stop order execution deteriorates
Solution Approach 1:
The system verifies conditional orders preliminarily against thresholds before they can trigger cascades. By preventing the initial stop order execution that would trigger the cascade, the system maintains market liquidity without sacrificing execution speed of legitimate orders.
Data Source
AI summary
A system mitigates market spike effects caused by conditional ordering triggering and election in an automated matching system. The system monitors trading as a result of cascading triggering of conditional orders. When an order is executed beyond a predetermined price threshold, an instrument may be flagged, allowing matching to occur only at or within the predetermined price threshold. Orders within the price threshold are matched at the price threshold against orders beyond it, dampening any instantaneous damaging effects of the price spike. The system may adjust the price threshold when market appropriate, allowing the order flow to bring the market back to whatever is the true price level. The system mitigates purely conditional order cascade driven price fluctuations, but allows the market to continuously trade in controlled price and time intervals ensuring that true market moves can still occur without price control mechanisms hindering trade matching and true price discovery.