Electronic Trading System Trade Joining Mechanism
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Solution Overview
Problem
Conventional electronic trading systems for currency options lack transparency and fail to utilize recently transacted volume as a basis for future trades, leading to disconnected pricing and reduced trading volume.
Innovation Solution
Implementing a system that allows users to 'work up' or 'join' trades based on recently executed currency options, using a graphical user interface with a countdown timer and separate market functionality, enabling participants to buy or sell additional volumes at the original price, and prioritizing trades based on user permissions and participation timing.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Loss of information
If conventional electronic trading systems match trades at different prices without relationship to previous trades, then trading flexibility is maintained, but transparency and volume utilization are reduced
Solution Approach 1:
The system performs preliminary actions by locking in the traded price and volume before allowing additional participants to join. The original trade price is established first, then used as a reference for subsequent participants to enter at the same price, ensuring transparency while maintaining systematic control
Solution Approach 2:
The system introduces an intermediary mechanism (the trade locking and joining facility) that mediates between original traders and additional participants. This intermediary structure allows multiple parties to participate in a trade at a unified price without direct bilateral negotiations, enhancing transparency while managing complexity through standardized processes
2Productivity
If a separate timed market is introduced for working up and joining trades, then user participation and transparency are enhanced, but system complexity increases
Solution Approach 1:
The trading system is segmented into distinct functional components: the original trading venue and the separate timed 'work up/join' market. This segmentation allows each segment to operate with specific rules and purposes, increasing overall trading volume by providing an additional participation opportunity while containing complexity within defined boundaries
Solution Approach 2:
The separate market operates with periodic timing mechanisms (countdown timers) that create structured trading windows. This periodic action organizes participant entry into defined phases, enhancing productivity by creating urgency and focus while managing complexity through time-based structure rather than continuous open participation
3Reliability
If original trade price is locked for additional participants, then price consistency and transparency are improved, but trading adaptability to new market conditions is reduced
Solution Approach 1:
The system extracts the price determination function from the separate timed market and assigns it exclusively to the original trading venue. The original trade price is locked and extracted as a fixed reference point, ensuring price consistency and reliability. The separate market then operates solely for participation at that established price, not for price discovery
Solution Approach 2:
The locked original price is copied and applied to all additional participants in the separate timed market. This copying mechanism ensures price consistency across all participants while allowing the system to adapt to new market conditions through the original trading venue, which can still establish new prices for subsequent trades
Data Source
AI summary
A method of trading a foreign currency option on an electronic trading system may include executing a trade of the foreign currency option between a buyer and a setter, locking the trading system with respect to the traded foreign currency option, querying the buyer whether the buyer desires to buy or sell additional volume of the option, querying the seller whether the seller desires to sell or hay additional volume of the option, and authorizing additional participants to join the trade and querying the additional participants whether each of the additional participants desires to buy or sell a volume of the option.