Trading Order Management via Locked Market Price Moves
Find Innovative SolutionsGenerate Solutions
Solution Overview
Problem
In electronic trading systems, market makers face losses due to latency issues, where their prices can be quickly outdated, leading to automatic trades that are not in their favor, and there is a need to manage locked or crossed markets to avoid unintended executions.
Innovation Solution
A system and method that manage trading orders by allowing market makers to delay or move their bids and offers to avoid automatic trades, using timers and price adjustments to create locked markets, and categorizing market makers into tiers to treat orders differently based on their status and information access.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If automatic trade execution is implemented when bid and offer prices lock or cross, then trading speed and system efficiency are improved, but market makers experience losses due to latency and stale prices
Solution Approach 1:
The system applies preliminary anti-action by detecting potential crossed markets between market makers and preemptively preventing automatic execution. When a crossing bid or offer is detected from a market maker, the system blocks automatic trade execution and instead moves the price to create a locked market, thereby preventing the harmful effect of latency-based losses before they can occur.
Solution Approach 2:
The system converts the potential harm of crossed markets into a benefit by automatically moving prices to create locked markets between market makers. This ensures market integrity and prevents erroneous executions while maintaining efficient trading for customer orders, transforming what would be a harmful latency issue into a protective mechanism.
2Measurement precision
If market makers' prices are updated in real-time, then trading accuracy is improved, but system complexity and latency increase
Solution Approach 1:
The system applies local quality by differentiating how prices are handled for different market participants. Market maker prices are subject to special handling with locked market prevention and automatic price moves, while customer orders receive standard immediate execution. This localized approach maintains accuracy where needed without unnecessarily complicating the entire system.
3Reliability
If locked markets are prevented by moving prices, then market integrity is improved, but trading efficiency decreases
Solution Approach 1:
The system segments the trading process into distinct pathways: crossed markets between market makers are redirected to locked market creation, while customer orders maintain standard execution flow. This segmentation ensures market integrity for inter-market-maker trading without impeding overall trading efficiency, as customer trades continue to execute immediately.
4Ease of operation
If all market makers are treated equally, then fairness is improved, but vulnerable market makers are exploited by faster participants
Solution Approach 1:
The system introduces asymmetry by providing differentiated treatment to market makers based on their latency characteristics. Market makers subject to crossing by faster participants receive protective measures including locked market creation and price moves, while faster market makers operate with standard execution. This asymmetric approach maintains fairness by protecting vulnerable participants without disadvantaging faster ones.
Data Source
AI summary
According to one embodiment, a method of managing trading is provided. A first offer for a particular instrument in a particular market is received from a first market maker at a first offer price. A first bid for the same particular instrument in the same particular market is received from a second market maker at a first bid price, the first bid price being higher than or equal to the first offer price. As a result of the first bid price being higher than or equal to the first offer price, the first offer price is automatically increased to a price higher than the first bid price such that a trade is not executed between the first offer and the first bid. In some embodiments, such method may be used to protect market makers from unwanted trades caused by inherent latency in the market makers' pricing engines and/or networks.