Trading System Price Display Segmentation Arbitrage Liquidity
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Solution Overview
Problem
Traditional electronic trading systems face issues with liquidity due to arbitrage trading and unfair price execution in discretion orders, which discourages traders from submitting such orders, thereby reducing system liquidity.
Innovation Solution
A trading system that manages orders by disclosing the root value of prices while suppressing the fractional pip value, preventing arbitrage and ensuring fair execution by executing trades at the midpoint of intersecting discretion ranges, thus encouraging traders to submit discretion orders.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Loss of information
If the trading system discloses the complete price including fractional pip values, then traders can see the exact price difference for arbitrage opportunities, but this enables arbitrage trading that decreases liquidity in the trading system
Solution Approach 1:
The patent segments the price display into two components: the root value (displayed to traders) and the fractional pip value (suppressed). This segmentation allows the system to disclose sufficient price information for legitimate trading while hiding the precise fractional differences that enable arbitrage, thereby maintaining liquidity.
2Reliability
If the trading system executes discretion orders at a price that favors one trader, then one trader benefits from the trade, but this creates unfair execution that discourages traders from submitting discretion orders and decreases liquidity
Solution Approach 1:
The patent implements equipotentiality by executing discretion orders at the midpoint price when both traders submit discretion orders. This ensures that neither trader is unfairly advantaged, creating a fair execution mechanism that encourages traders to submit discretion orders, thereby increasing liquidity in the system.
Data Source
AI summary
A system for managing trading orders comprises a memory operable to store a first order associated with a particular trading product, wherein the first order is associated with a first price comprising a first root value. The system further comprises a processor communicatively coupled to the memory and operable to receive a second order associated with the particular trading product. The second order is associated with a second price; and the second price comprises a second root, value, and a particular fractional pip value. The processor is further operable to disclose the first root value and the second root value while suppressing the particular fractional pip value.