Trading System Profit Redistribution Mechanism
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Solution Overview
Problem
Electronic trading systems often result in market price distortions due to spikes caused by traders taking advantage of others' buying or selling desires, leading to artificially high prices and economic dislocation.
Innovation Solution
Systems and methods to detect and redistribute excess profits from artificially high prices among market participants based on their trading records, using a benchmark price comparison to determine excess profits and distribute them according to market share or other suitable determinants.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If traders submit bids and offers to the electronic trading system, then trading efficiency and market liquidity are improved, but market price distortions and artificially high prices occur due to traders taking advantage of others' buying or selling desires
Solution Approach 1:
The patent detects artificially high prices caused by traders exploiting market conditions and redistributes the excess profits generated from these distortions back to market participants. This converts the harmful effect of price manipulation into a beneficial redistribution mechanism that compensates affected traders while maintaining market liquidity and trading efficiency.
Solution Approach 2:
The system continuously monitors trading prices, compares them against benchmark prices, and implements profit redistribution when distortions are detected. This feedback loop creates a self-correcting mechanism that addresses price distortions in real-time while preserving the overall trading functionality and efficiency of the electronic trading system.
2Speed
If the electronic trading system allows aggressive traders to hit and lift passive orders, then transaction speed and market responsiveness are improved, but economic dislocation occurs due to spikes in market prices
Solution Approach 1:
The patent identifies price spikes resulting from aggressive trading and redistributes the excess profits generated from these transactions to market participants. This converts the destabilizing effect of aggressive trading into a stabilizing force by compensating traders who were adversely affected by price distortions.
Solution Approach 2:
The system changes the distribution of economic parameters (profits) in the market by redistributing excess profits from artificially high transactions to participants who were negatively affected. This parameter change maintains transaction speed while improving market stability and fairness.
3Ease of operation
If the system redistributes excess profits to market participants, then market fairness and participant compensation are improved, but system complexity increases due to price monitoring and profit calculation mechanisms
Solution Approach 1:
The patent implements an automated system that self-monitors trading prices, self-calculates excess profits, and self-redistributes funds to affected participants without requiring manual intervention. This self-service approach maintains market fairness while minimizing the operational complexity burden on human operators.
Solution Approach 2:
The system introduces an intermediary mechanism that automatically detects price distortions and manages profit redistribution. This intermediary layer handles the complexity of monitoring and calculation internally, presenting a simplified interface to market participants while ensuring fair distribution of excess profits.
Data Source
AI summary
Systems and methods for trading commodity, an item or instrument are provided. The market prices and trading may be monitored to detect a spike in the market price or artificially high market price. Excess profits resulting from the sale at an artificially high market price may be distributed to market participants based upon the participant's trading record in the market or upon some other suitable method.