Automated Trading System Multi-Currency Order Conversion
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Solution Overview
Problem
Automated trading systems face challenges in handling orders in multiple currencies, leading to illiquid markets and suboptimal exchange rates, as traders cannot easily place orders in different currencies or receive conditional orders based on current exchange rates, resulting in less favorable trading conditions.
Innovation Solution
Modifying the automated trading system to allow orders in multiple currencies and maintaining a single order book for each instrument, with real-time exchange rate updates to calculate and adjust orders, ensuring that bids and offers are matched across currencies, thereby increasing market liquidity.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If the automated trading system supports orders in multiple currencies for each instrument, then traders can place orders in different currencies, but the market becomes illiquid in all but one currency
Solution Approach 1:
The patent merges multiple currency order streams into a single unified order book. Orders received in different currencies are automatically converted to the instrument's base currency using real-time exchange rates, and all orders compete for the same liquidity pool. This consolidation prevents fragmentation while maintaining multi-currency accessibility.
Solution Approach 2:
The system introduces an intermediary conversion mechanism using real-time exchange rates. When a trader places an order in a non-base currency, the system acts as an intermediary by automatically converting the order to the base currency at the current exchange rate before matching it with counterparty orders. This intermediary layer enables multi-currency trading without creating separate illiquid markets.
2Quantity of substance
If the system uses a single order book for each instrument, then liquidity is consolidated, but traders cannot easily place orders in different currencies
Solution Approach 1:
The single order book is designed to be universal and accept orders in multiple currencies. The system maintains one consolidated order book per instrument that can process orders regardless of the currency in which they are placed. Exchange rate conversion is performed automatically, making the single order book universally accessible to traders using different currencies.
Solution Approach 2:
The system dynamically changes the currency parameter of incoming orders based on real-time exchange rates. When an order arrives in a non-base currency, the system transforms the price and quantity parameters using the current exchange rate, converting them into the base currency parameters required by the single order book. This parameter transformation maintains liquidity consolidation while accommodating currency flexibility.
3Ease of operation
If traders place orders without real-time exchange rate information, then the system is simpler to operate, but traders do not obtain the best possible price
Solution Approach 1:
The system performs preliminary conversion of order parameters using real-time exchange rates before orders are entered into the order book. By pre-converting foreign currency orders to base currency at the current exchange rate, the system ensures price accuracy is maintained throughout the matching process. Traders simply place orders in their preferred currency without needing to manually calculate conversions, and the system handles the precise exchange rate application automatically.
Solution Approach 2:
The system implements feedback by continuously updating orders in the book with current exchange rates. When exchange rates change, the system automatically adjusts the converted prices and quantities of pending orders to reflect the latest market conditions. This feedback mechanism ensures that traders always transact at the best possible price based on real-time exchange rate information, while maintaining operational simplicity.
Data Source
AI summary
In an automated trading system wherein orders in an instrument in a specified currency are received and a trade in the instrument is performed when, for a certain volume of the instrument, a bid price matches an ask price, a method is provided for automatically generating an order in the instrument in said specified currency. The method comprised the steps of receiving from e.g. a currency market or a market maker a current exchange rate between a currency other than said specified currency and the specified currency; receiving from a trader an order in the instrument in said other currency; calculating a price of the order in the specified currency based on the received order and the current exchange rate; and generating the order in the instrument in the specified currency.