WO2001009699A9 - System, method, and article of manufacture for estimating a price of a limit order - Google Patents
System, method, and article of manufacture for estimating a price of a limit orderInfo
- Publication number
- WO2001009699A9 WO2001009699A9 PCT/US2000/020955 US0020955W WO0109699A9 WO 2001009699 A9 WO2001009699 A9 WO 2001009699A9 US 0020955 W US0020955 W US 0020955W WO 0109699 A9 WO0109699 A9 WO 0109699A9
- Authority
- WO
- WIPO (PCT)
- Prior art keywords
- limit order
- price
- pπce
- trading
- order
- Prior art date
Links
Classifications
-
- G—PHYSICS
- G06—COMPUTING; CALCULATING OR COUNTING
- G06Q—INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR
- G06Q40/00—Finance; Insurance; Tax strategies; Processing of corporate or income taxes
- G06Q40/04—Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
Definitions
- limit orders is a standard ⁇ av to buy and sell exchange-traded secu ⁇ ties
- a limit order is similar to an ordinary "market" order, except for a few characte ⁇ stics
- limit oiders also specify a worst acceptable price for the trade
- brokers have been only marginally successful in persuading their customers to use limit orders
- the main reason for this trend is that ordinary people have a difficult time coming up with good p ⁇ ces at which to place their limit orders
- a "good" p ⁇ ce would be one that is high enough to give a high likelihood of being 0 filled, but one which is low enough to ensure that the buyer does not overpay for the stock
- a system, method and article of manufacture are provided for estimating a p ⁇ ce associated with a limit order First, an indicia identifying a secu ⁇ ty is received from a user. A p ⁇ ce is then estimated for a limit order for the secu ⁇ ty.
- Estimation of the p ⁇ ce may be based on va ⁇ ous factors such as a desired time interval du ⁇ ng which the limit order is to be filled, a desired probability with which the limit order is to be filled, and/or a cu ⁇ ent bid p ⁇ ce and offered p ⁇ ce of the secu ⁇ ty Thereafter, the p ⁇ ce for the limit order is outputted
- the p ⁇ ce may be estimated on a server connected to a plurality of client computers via a network By this structure, the indicia mav be received from the client computers over the network Further, the estimated p ⁇ ce for the limit order may be outputted to the client computers over the network
- Figure 1 is a schematic diagram of one possible hardware implementation in accordance with one embodiment of the present invention.
- Figure 2A is a flow diagram depicting a method by which a probability is estimated for a limit order in accordance with another embodiment of the present invention
- Figure 2B is a flow diagram depicting a method by which a time is estimated for a limit order in accordance with another embodiment of the present invention.
- Figure 3 is a flow diagram depicting a method bv w hich a p ⁇ ce is estimated for a limit order based on a user-specified time al and probability in accordance with another embodiment of the present invention.
- Figure 5 is a flow diagram depicting a method by which a probability is estimated for a limit order based on a user-specified price and time interval in accordance with another embodiment of the present invention.
- Figure 6 is a flow diagram illustrating the operation 306 of Figure 3 in greater detail.
- Figure 7 is a flow diagram illustrating the operation 604 of Figure 6 in greater detail;
- the present invention facilitates the placement of a limit order without requi ⁇ ng focus on more complex aspects of the problem More particularly, the present invention involves selecting a few intuitive parameters which are easy for unsophisticated users to supply.
- Figure 1 is a schematic diagram of one possible hardware implementation by which the present invention may be earned out As shown, the present invention may be practiced in the context of a personal computer such as an IBM compatible personal computer. Apple Macintosh computer or UNIX based workstation
- FIG. 1 A representative hardware environment is depicted in Figure 1 , which illustrates a typical hardware configuration of a workstation in accordance with one embodiment having a central processing unit 110, such as a microprocessor, and a number of other units interconnected via a system bus 112.
- the workstation shown in Figure 1 includes a Random Access Memory (RAM) 114, Read Only Memory (ROM) 116. an I/O adapter 118 for connecting pe ⁇ pheral devices such as disk storage units 120 to the bus 112.
- a user interface adapter 122 for connecting a keyboard 124. a mouse 126. a speaker 128. a microphone 132, and/or other user interface devices such as a touch screen (not shown) to the bus 112.
- communication adapter 134 tor connecting the workstation to a communication network (e g , a data processing netw ork) and a display adapter 136 tor connecting the bus 112 to a display device 138
- a communication network e g , a data processing net
- the workstation typically has resident thereon an operating system such as the Microsoft Windows NT or Wmdows/95 Operating System (OS), the IBM OS/2 operating system, the MAC OS. or UNIX operating system Those skilled in the art will appreciate that the present invention may also be implemented on platforms and operating systems other than those mentioned
- FIG. 2A a simplified framework is shown to be provided for estimating a probability with which a limit order is to be filled
- an indicia identifying a secu ⁇ ty is received from a user, in operation 217
- a probability is then estimated for a limit order for the secu ⁇ ty in operation 218
- Estimation of the probability may be based on va ⁇ ous factors such as a desired time inten al du ⁇ ng which the limit order is to be filled, a desired price for the limit order being filled, and/or a current bid p ⁇ ce and offered p ⁇ ce of the secu ⁇ ty
- the estimation of the probability may be at least partly dependent on whether the limit order is a sell order or a buy order Any or all of the foregoing parameters may be received as a component of the indicia
- the desired probability with hich the limit order is to be filled is outputted after which the process is terminated in 221.
- an indicia identifying a secu ⁇ ty is received from a user in operation 224
- the indicia may include a ticker symbol of the secu ⁇ ty
- a time interval is then estimated for a limit order for the secu ⁇ ty in operation 226
- Estimation of the time interval may be based on various factors such as a desired p ⁇ ce of the limit order to be filled, a desired probability with which the limit order is to be filled, and/or a cu ⁇ ent bid p ⁇ ce and offered p ⁇ ce of the secu ⁇ ty
- the estimation of the time interval may be at least partly dependent on whether the limit order is a sell order or a buy order Any or all of the foregoing parameters may be received as a component ot the indicia
- any or all of the foregoing parameters may be received as a component ot the indicia
- any of the user-specified parameters, l e p ⁇ ce. time interval, probability, current bid p ⁇ ce, offered p ⁇ ce, etc . may be inputted by any input device such as the keyboard
- the estimations may be earned out via the CPU 110 which in turn may be governed by a computer program stored on a computer readable medium, l e the RAM 114, ROM 116, the disk storage units 120, and/or anything else capable of sto ⁇ ng the computer program
- dedicated hardware such as an application specific integrated circuit (ASIC) may be employed to accomplish the same
- the outputtmg of the p ⁇ ce may be effected by w ay of the display 138.
- the foregoing components need not be resident on a single computer, but also may be a component of either a networked client 202 and/or a server 204, as shown in Figure
- o prob a desired probability with which the limit order is to be filled.
- the variable x represents an arbitra ⁇ ly or intentionally selected upper limit of a time interval during which the limit order is to be filled
- the va ⁇ able PI may be arbitra ⁇ lv or intentionally selected
- the current bid p ⁇ ce may be defined as
- the offered p ⁇ ce may be defined as
- the v a ⁇ able that is to be estimated is a probability with which the limit order is to be filled instead of a p ⁇ ce.
- the vanable that is to be estimated is a time interv al during which the limit order is to be filled
- sigma may be selected by the user or any other entity based on an assortment of different factors It should be noted that sigma may also be received as a component of the aforementioned indicia
- the v arious factors on which selection of sigma may be based include a histoncal volatility of the secu ⁇ ty over an arbitrarily predetermined time pe ⁇ od. a forecasted volatility of the secu ⁇ ty over an arbitra ⁇ ly predetermined time period, a current volatility of the security, a forecasted trading range of the security over an arbitra ⁇ ly predetermined time pe ⁇ od. an implied volatility of the secu ⁇ tv .
- sigma may be calculated using the formula
- o Ho a current highest trading p ⁇ ce of the secu ⁇ ty
- o Lo a cu ⁇ ent lowest trading p ⁇ ce of the secu ⁇ ty
- o y an arbitra ⁇ ly predetermined number of days
- o H, the highest trading p ⁇ ce of the secunty I days ago
- o L, the lowest trading p ⁇ ce of the secu ⁇ ty l days ago
- a ⁇ able y may be an arbitra ⁇ lv predetermined number of days, it is preferred that a large number of days be chosen to enhance accuracy of the estimation
- a may be non-zero for only a finite number of values of i
- at least one value of a may be calculated v ia a regression or be a function of sqrt( ⁇ )
- H, and L may be defined as the highest and low est trading p ⁇ ce of the secu ⁇ ty at any time w ithin l prev ious days, respectiv elv
- m operation 302. a desired time interval du ⁇ ng which a limit order is to be filled is received from a user Also received from the user is a desired probability with which the limit order is to be filled, as indicated in operation 304
- a p ⁇ ce associated with the limit order is estimated based on the desired time interval and the desired probability Note operation 306
- the price is then outputted for facilitating the filling of the limit order in operation 308 after which the method is done in operation 310
- Figures 4 and 5 each illustrate alternate embodiments of the embodiment shown in Figure 3
- Figure 4 shows a v ariation w herein, upon starting in operation 400.
- a desired probability and desired p ⁇ ce are received from a user in operations 402 and 404, respectively
- a time interval du ⁇ ng which the limit order is to be filled is estimated and outputted m operations 406 and 408, respectively It should be noted that the time internal is estimated based on the desired p ⁇ ce and probability
- the method of Figure 4 is then terminated in operation 410
- Figure 5 shows a variation wherein, upon starting in operation 500. a desired time interval and desired price are received from a user m operations 502 and 504. respectively Next, a probability with which the limit order is to be filled is estimated and outputted in operations 506 and 508. respectiv ely In the present embodiment, the probability is estimated based on the desired price and time interval The method of Figure 5 is then terminated in operation 510.
- the va ⁇ ous information of the alternate embodiments of Figure 4 and Figure 5 may inputted, processed, and outputted in a manner similar to the embodiment of Figure 1 A.
- the present method includes calculating the p ⁇ ce in real-time using a particular algo ⁇ thm which represents a relationship between the time interval, probability, and p ⁇ ce Note operation 602
- algo ⁇ thm may assume a sufficiently short time interval and that the p ⁇ ce may be desc ⁇ bed by a d ⁇ ftless Browman motion
- F(P) is an anti-de ⁇ vative of the exp(-k*x ⁇ ), and R(T) is a random va ⁇ able representative of a trading range over the time interval (T)
- the present invention thus reduces the problem of calculating the odds of execution of a limit order priced at (P) to the problem of estimating the random va ⁇ able R(T), the mathematical expectation of the ensuing trading range m time interval (T) A forecast.
- R / ⁇ T) for the forthcoming trading range can serve effectively as an estimator for R(T) provided that it meets certain en mee ⁇ ng standards for accuracy, robustness, and adaptivity If this c ⁇ te ⁇ a is met. output.
- the estimator R (T) thus represents an adaptive, robust algo ⁇ thm for predicting the future trading range of an exchange-traded secu ⁇ ty in real time
- R(T) denotes the trading range of some secu ⁇ ty over the forthcoming interval (T)
- the estimator R, ⁇ T) is a valid substitute for R(T).
- the estimator R, ⁇ T) In order for the estimator R, ⁇ T) to be useful in the context of p ⁇ cing limit orders for commercial use, it should have certain characte ⁇ stics.
- the estimator R T should exhibit a high signal-to-noise ratio when tested on out- of-sample data Further, it should be adaptive to unexpected changes in real time volatility and be able to incorporate real time data in a mathematically consistent way. without requi ⁇ ng explicit calibration to real time data.
- the robust estimator R T) should forecast over a fixed interval smoothly with time: that is to say, without extreme swings.
- the estimator R / ⁇ T) should further exhibit its robust qualities by producing meaningful and useful results regardless of extreme market conditions.
- the estimation of the model's parameters should also yield consistent results over the space of all related secu ⁇ ties.
- the estimator R,(T) should measure the model's goodness-of-fit and yield consistent results for all securities over the same periods of out-of-sample data
- r( x) is the size of the trading range over the time interv al (T), i.e (now-x. now )
- (S) is arbitra ⁇ ly chosen to be one day.
- the (L) is chosen to be seven days.
- the form of the above model suggests the use of regression to estimate the parameters.
- Step 2 Estimate c ⁇ i (t) and C
- -i (t) for t 1 day, using the same technique as m step 1.
- Step 3 Step 1 gives a forecast of the 1 -day trading range which is valid at the start of the day
- Step 2 yields a forecast of the 1 -day trading range which is valid at the end of the day
- x be the fraction of the trading day which has elapsed at some point p du ⁇ ng the day
- Deriv e a forecast of the 1 -day trading range starting at p by blending forecasts 1 and 2 in the proportion ( 1 - ⁇ , x )
- the model is thus calibrated so that it can accept real-time information on the size of the p ⁇ or range without having directly used real time data in the estimation process
- Step 4 De ⁇ ve from first p ⁇ nciples that R (T) vanes as the square root of (T) Thus, one can forecast the range over an arbitrary al bv taking the output of Step 3 and multiplying bv the square root of (T), where (T) is in units of days
- FIG. 7 is a flowchart illustrating a summarv of the toregoing tour steps
- m operation 700 r(S) and r(L) are determined, m operation 702
- the estimator R/T) is then generated using the first preliminary estimator R/ ⁇ (T) and the second preliminary estimator Rc(T). as indicated m operation 708
- the process is then terminated m operation 710
- step 1 begins m operation 800, after which a standard regression line is fitted m order to afford a fit See operation 802 Next. outliers to the fit are discounted in operation 804 The regression line is then re-estimated using a discounting schedule in operation 806 after which the process is terminated in operation 808
- the physical auction floor is divided into several rooms, each of which has posts or columns around which trading panels are arranged
- the trading panels are where particular secu ⁇ ties are designated to be traded
- Each secu ⁇ tv is traded at a certain trading panel
- the specialist is situated at one of the trading panels and has several roles m the trading process including auctioneer to call out the best bids and offers to brokers that request quotes during the trading session and to ensure that all trades are posted, catalyst to call a particular broker who has prev louslv expressed a buying interest to the post in response to a selling interest at the post, agent to represent investors in trades that have limits imposed thereon, for example, a p ⁇ ce floor, etc , and franchiser to provide capital when necessary to maintain liquidity when supply and demand are out of balance
- the floor broker roams about the trading floor and as an agent transacts orders on behalf of the buvers and sellers Approximatelv mnetv percent of the orders that the floor broker executes are obtained from a clerk who is situated on the perimeter of the exchange
- the floor trader is like a floor broker, except the floor trader trades for his or her ow n account For
- an investor is an order o ⁇ ginator which may include institutions such as banks and pension funds, other broker/ dealers, tiading desks (institutional, retail, arbitrage, etc ), public customers (including individuals), and the like
- the trading desk may either convev the order to a clerk (electronically or by telephone), or electronically to the specialist at the trading post
- the clerk is known as the "order” or "booth clerk "
- the booth clerk notes the parameters of the order, for example, the side of the transaction (buy or sell), the symbol of the secunty (e.g . IBM, GM, etc ). the quantity (e g .
- the investor may also request that the trading desk obtain a quote from the floor of the exchange to get the "feel" of what is happening in the market ot a particular secu ⁇ ty
- the quotation services such as ADP and Quotron, which includes the best bid and ask p ⁇ ces, the market size at the best p ⁇ ces, and perhaps opening and closing p ⁇ ces on the day for the stock as well as the last trade
- this quote provides more insight or "flav or” into the market
- the "flavor quote” or “market look” may indicate (1 ) who were the recent buyers and sellers of the secu ⁇ ty and the size and p ⁇ ce of those trades.
- the trading crowd which includes the specialist w ho makes the market in that security and the other floor brokers and floor traders that may be working that post, provides a view of the market not obtainable from an official quote
- the investor is able to discern the real story of the market in a particular secu ⁇ ty so that he or she can make an educated decision as to what position to take in a secu ⁇ ty
- quote requests and orders are generally refe ⁇ ed to as instructions whereas the quotes and executions are generally referred to as responses to the instructions, but are transmitted as instructions
- the floor broker executes orders and obtains quotes according to instructions from the booth clerk
- the floor broker is typically stationed at one of several trading panels. It is not uncommon for a floor broker to specialize m a few select secu ⁇ ties The specialized floor broker can therefore generally be located on the crowded trading floor in the vicinity of a certain trading panel, however, the floor broker is only effective in his or her function if he or she is free to move from panel to panel, and to different posts
- the booth clerk transc ⁇ bes the instructions onto either an order slip or a quote request form, depending on the nature of the instruction.
- the booth clerk decides whether to send the instruction to the trading post electronically, or to use a floor broker
- the booth clerk decides to use a floor broker
- he or she enlists the aid of pages or runners to carry the instructions to the floor broker because the booth clerk is situated around the pe ⁇ meter of the trading floor
- the floor broker provides the page with transc ⁇ bed quotes and executions in response to all of the instructions that the floor broker has handled since the last time a page found that broker in the trading crowd
- the floor broker can remain in the crowd, doing his or her job
- the floor broker may provide the page with an "unsolicited quote," that is, insight on the market that may be important to investors being represented by the floor broker, but who have yet to specify such a request.
- the astute floor broker recognizing activity at the trading panel that may be of interest to the investors he or she represents, transmits unsolicited quotes back to the booth clerk so that the clerk can disseminate the information as approp ⁇ ate
- the page runs the quotes, executions, and unsolicited quotes to the booth clerk for reconciliation and reporting
- a booth clerk cannot apprise the investor of progress on the instruction For example, in an upwardly mobile market, a booth clerk cannot report the partial execution of a buv order, or the average p ⁇ ce for that portion of the filled order. until the executions are retneved from the floor brokers and reconciled with the order.
- the floor broker on either side of a transaction transcribes the time of the transaction, the side of the transaction (buy or sell), and the time, so that the trades can later be reconciled
- a unique badge number is usuallv rep ⁇ nted on each floor broker's "deck" of execution slips to facilitate reconciliation
- One solution includes a svstem that provides brokers on a commodities exchange with a computer terminal that matches buy and sell orders in accordance with the investor ' s instructions, such as limit orders, etc . and further prov ides an electronic audit trail of executed orders.
- the disclosed workstation is not portable, and therefore is not usable within the trading crowd. Further, while this system provides an acknowledgement that a message was received at the broker's workstation, it does not inform the sender that the recipient has seen the received order.
- AUDIT Automatic Data Input Terminal
- AUDIT Automatic Data Input Terminal
- This device uses limited handw ⁇ ting recognition to allow brokers to enter trade information into a handheld terminal
- the AUDIT system broadcasts data on each trade from the trading pits to the exchange computers Also, at the Coffee.
- Sugar & Cocoa Exchange a handheld terminal which resembles a calculator with dedicated alphanume ⁇ c and function keys is being tested for reporting the p ⁇ ce and month of each futures and options contract
- the clea ⁇ ng house hich may be a subsidiary of the exchange or an independent entity, assumes one side of all open contracts the clea ⁇ ng house becomes the buyer to each seller of a futures contract, and a seller to each buyer The clea ⁇ ng house guarantees its members the performance of both sides of all open contracts
- Floor traders are generally classified in two ways ( 1 ) speculators, or "locals," buy and sell for their own accounts, and (2) floor brokers fill orders for commission houses, producers and processors seeking to lock in a p ⁇ ce for their products Unless a trader is a member of an exchange, it is necessary for the trader to deal on the exchange through a member brokerage firm Normally, firms that handle public business (the "commission houses") must be registered as “Futures Commission Merchants.” or “FCMs " A "local” can take long-term positions (i e , weeks or months) or “scalp” over very short pe ⁇ ods (liquidating positions withm seconds or minutes of ente ⁇ ng the transactions) He may trade in one or more pits He benefits from the speed with which he can take or liquidate positions, but this is in itself no assurance of a profit Some floor traders specialize in spreads by taking opposite positions between future or options when the p ⁇ ce difference appears abnormal Floor traders have the advantage of lower transaction costs available to all members of exchanges
- the floor traders who execute orders for others but seldom or never trade for themselves are the brokers who may specialize in orders from customers such as commercial processors, exporters. financial institution commodity trading funds and the like Thev may receive only a small percentage of the commissions paid by the customer to his commission house, but the commission revenues may be substantial depending on the volume of business
- the orders held by a floor broker at any given time are referred to as his "deck " He is allowed to trade for his own account if he chooses, but he can not use the public orders to benefit his own trading
- the representative When a registered representative of the commission house receives an order from a customer, the representative sends the order to the commission house's order desk on the trading floor, where it is usually handed to a messenger and taken directly to an approp ⁇ ate broker in the trading pit or ⁇ ng
- the broker in the trading pit Once the broker in the trading pit has the order, he typically uses voice and hand signals to announce his bid or offer p ⁇ ce, the delivery month, and the quantity to be bought or sold
- messenger Once the order has been executed, it is carried by messenger back to the commission house's order desk on the trading floor, and the confirmation of the order is dispatched back to the office where it was initiated
- the representative then usually telephones the confirmation to the customer or hands him a confirmation slip if he is present in the office
- the floor brokers' stock in trade is their skill m executing the orders they receive and accept They must decide, instantly, the tactics that will be most effective in filling a given order whether to wait for bids or offers, or whether to hold with the current pnce. or to bid up or offer down promptly To be effective, they must know the pit who will do how much at what p ⁇ ce
- the deck is a stack of orders that are to be executed by the broker
- the orders are typically written on pieces of paper about five by seven inches which are then a ⁇ anged by the broker in a sequence for execution as the market p ⁇ ce moves up or down
- the broker usually folds them for concealment and puts them in his pocket so that his hands will be free to signal and to handle his trading card and pencil Occasionally, the decks are as much as an inch thick and require great memory skill and anticipatory planning
- Continuous orders are those that impose certain limitations beyond the quantity and delivery month, such as limits in pnce or time, or both
- a "price limit order” contains a p ⁇ ce limitation that is specified bv the customer, it can be executed only at the p ⁇ ce specified or at a better p ⁇ ce level A.
- “fill or kill” order contains a specified price at which the order must be executed or it is to be immediately cancelled
- a "buy stop order” instructs a broker to execute the order when the p ⁇ ce of a commodity ⁇ ses to a specified level above the cu ⁇ ent market p ⁇ ce
- the "buy limit order” is usually placed below the current market price and must be executed at the limit price or better
- the difference between a buy limit order and a buy stop order is exemplified as follows
- a customer may be inclined to buy December sugar, which could be selling at a pnce of 5 43 cents per pound
- the customer could tell his broker to buv a contract at a pnce not to exceed 5 35 cents, this is a "buy limit order "
- Another customer under the same circumstances could tell his brokei to buy a contract of December sugar but not until the price rises to at least 5 55 cents, at w hich point the order will be executed at the market, this is a "buy stop ordei "
- the buv stop order is placed above the current maiket and may be executed at the price specified on the stop, above it, or below
- a "sell stop order” instructs a broker to execute an order when the pnce falls to a given level, at which point it is to be executed at the market pnce Unlike a typical "sell limit order", the sell stop order is below the current market price and may be executed at a p ⁇ ce at. abov e. or below the specified stop p ⁇ ce when it is elected
- stop limit order The customer might instruct his broker not to buy sugar until it nses to 5 53 cents per pound and not to pay more than 5 55 cents This is unlike the unlimited stop, which becomes a market order when the stop p ⁇ ce has been touched
- the limit p ⁇ ce may be the same or different from the specified stop
- a "market-if-touched (M I T ) order” is like a limit order but the M I T order is executed at the market when the market has traded at the pnce specified on the order, and so it may be filled either at that specified p ⁇ ce. above it, or below it M I T orders are sometimes called "board orders " The order mav be entered for one day. a specified period, or open (I e , good until cancelled)
- a customer may wish to take a position withm a short time but would like the broker on the floor of the exchange to use some of his personal judgment in the timing of the fill The broker could do this if the order indicates that he is to fill it at the market but is to take his time and ill not be responsible if by waiting too long or not waiting long enough the price is unsatisfactory to the customer Such orders may be marked "not held " Customers may also specify the time at which they wish their orders filled, e g , "on opening,” “on close,” or at a particular specified time
- Alternativ e orders provide for one of tw o possible executions a customer mav order 5,000 bushels of corn at S I 45 a bushel and 5 000 bushels ot wheat at S2 56 a bushel, but not w ant both
- a far more common example ot the alternative order is the placing of an objective and a stop, with instructions to cancel one if the other is filled, for example, having bought one contract of soybean oil at 14 50 cents a pound, a customer mav order his broker to sell the oil either at 14 95 or 14 25 cents stop, whichev er occurs first, and then immediately cancel the remainder of the order to avoid inadvertently reversing his position
- “Scale orders” are used to establish or liquidate positions as the market moves up or down
- the sugar trader mav instruct his broker to buv a contract of sugar at 5 45 cents and another contract each time the price drops five points from that level until he has accumulated six contracts
- he mav order the broker to sell one contract at 5 70 cents and another contract each time the price nses five points until his six contracts have been sold
- the order management system of the present invention is applicable to all markets, including those for secunties trading Secunties markets are usuallv based on actions by specialists, each of whom is the market maker for one or more specific secunties In the New York Stock Exchange, for example, the ultimate determination of pnce for any given transaction frequently is determined by a specialist who deals in a particular stock and who maintains a running list or "book" of offers to sell and orders to purchase that stock
- the specialist may complete a transaction in the stock whenever one or more purchase and sell orders can be matched with respect to pnce, on occasion, the same specialist purchases the particular stock in which he specializes or sells the same stock in order to maintain a market for the stock and prevent violent fluctuations in its pnce
- Similar functions, particularly with respect to the matching of orders to purchase and to sell, must be carried out in all auction markets for the marketing of fungible goods, including such commodities as w heat, corn, and the like as well as stocks and bonds
- pnces are established in auction trading for the securities market
- This computation system compnses a main data store for recording encoded data items representative of orders to buy and to sell the goods, such orders including orders at specific p ⁇ ces and other orders "at the market "
- the system includes a buy order sequencing device for arranging and recording purchase offers first m descending order by pnce and secondly by time of entry so that at each pnce lev el the oldest orders are uppermost
- a sell order sequencing device is provided for a ⁇ anging and recording all offers to sell first in ascending order by p ⁇ ce and secondly in descending order by time so that once again the oldest orders are the highest at each p ⁇ ce level
- a closing price store is provided to record the last actual selling p ⁇ ce for the goods
- the closing p ⁇ ce store and the mam data store are coupled, bv suitable control means, to the sequencing devices m order to transfer the recorded data items from the data store to the sequencing dev ices with "at market" pnces being transferred at
- the present invention provides a system that allows brokers to manage their decks and to improve the accuracy of communications between the trading floor and the customers
- the present invention can also reduce the back office costs to trading firms by reducing the volume of paperwork and consequent errors
- the structured trading of the present invention provides a sufficiently flexible environment to permit negotiation of complex trades while greatly reducing the data input needed from both traders and greatly enhancing comprehension of responses. Furthermore, the structured data transmissions of the present invention can be accurately processed by digital computers to create errorless records of a completed transaction. In a similar manner, the structured data transmissions can be monitored to reduce costly data entry e ⁇ ors that are possible when p ⁇ ces and amounts are being entered
- the present invention overcomes the disadvantages and problems of the p ⁇ or art by providing a central exchange host arrangement and system that is in communication, through means such as a satellite system, with local exchanges located at vanous sites around the world.
- a remote terminal user member of any one exchange can trade with a remote terminal user member of its own exchange or with a user member of any other exchange around the world through its local exchange and the central exchange host which monitors all of the trades in each of the local exchanges and provides market information to a remote terminal user member that belongs to any of the local exchanges at the various sites around the world.
- the user member of any one local exchange can communicate directly with the central exchange host to obtain market information relative to any member exchange.
- a user member of the World Energy Exchange in Dallas would like to obtain market information concerning trading of a particular commodity on a Pans commodity exchange, he may communicate directly with the central exchange host and obtain that information
- the same user member wishes to trade with another user member of the Pans Commodity Exchange he would enter a bid or an offer through his remote terminal to his local exchange which would then communicate that information to the central exchange host and then to the Pans Commodity Exchange through the satellite system where the bid or offer would be displayed on the user member remote terminal
- a user member of the Dallas World Energy Exchange could effect a commodity trade with a user member of the Pans Commodity Exchange or any other member exchange around the world
- the commodity information and trading transaction paths from the individual local commodity exchanges takes places as follows A central gathering point (central exchange host) of commodity information from the individual local commodity exchanges is established The commodity information will come in via land or satellite communication connections The information is then transmitted via satelhte(s) world wide to local exchanges The traders have the necessary equipment to receive the broadcasted commodity information at remote user terminals and sort out and display the preselected individual exchanges around the world with which thev ish to trade as w ell as displaying the commodities in which they are interested From the co ⁇ elations and observ ation of the commodity information the trader decides upon a position u e .
- the desired position is entered and transmitted v la satellite to the central gathering point and routed to the indi idual local commoditv exchange(s)
- the central exchange host Upon confirmation of receipt bv all involved local commoditv exchanges participating in the submitted position and the acceptance of the position bv another trader, the central exchange host transmits a position confirmation to the individual trader at the remote user terminals completing the establishment of a position transaction
- the second information flow is independent of the first but uses the same communications paths
- the second information flow is a transaction consisting of the entrv of a proposed commoditv trading transaction and the notification of its acceptance bv a trader member of the designated local exchange
- the established position and its subsequent liquidation or completion is also routed through the central exchange host
- a touch screen data entry system is associated with the remote user terminals screen display for displaying input information and data representing the bids and offers By physically touching symbols representing a bid or an offer, the commodity selected, and the local exchange selected, the pertinent data is input from the user terminal into the system for transmission through the user's local exchange, the central exchange host, and the selected local exchange to the remote user terminals associated with the selected exchange
- the accounting process also has its problems Once the matching of trades takes place, the information is fed into the clea ⁇ ng process of an exchange
- the present clearing process in most exchanges is a computerized process. However, since information is manually entered, after the fact of the trade, its value lies only m the accounting process and not in the control of the exchange process
- the exchange only knows at the end of the day if a trader has exceeded his position limits or has incorrectly identified a cleanng member or has provided other incorrect information On most exchanges 300 to 400 individuals are required to process trading cards and complete the clea ⁇ ng function
- the present invention the automated futures trade exchange, has created an entire automated process for trading futures contracts which provides accurate and precise information, trading based on factual data, assurance of execution and immediate confirmation of the contracts, control through real time processing of information and electronic surveillance, and the use of computer hardware to implement the process It does not separate clearing and surveillance from the futures trading process as do other exchanges because it is the combined process which allows the markets to function properlv
- each bid or offer will become part of the market data displayed m every member's remote terminal video monitor
- the breadth of the market w ill also be indicated That is, whether a bid of 200 contracts represents one offer to buy 200 contracts or 20 offers to buy 10 contracts
- each remote terminal will display lot sizes, last sale pnces, daily price ranges, the volume for each contract month, the spread relationships or price differential among the vanous contract months, and allows simultaneous spread trades (both in time and bv commodity) to take place
- Pertinent to this process is the capability to modify pnces at a remote terminal by moving a cursor on the video display to the bid or offer desired to be modified by the user which modification is then accomplished through the keyboard
- the capability to see the display of buys and sells is analogous to the open outcry system of trading and is pertinent to good trading because it shows the supply and demand in the market.
- a trader would have a "feel" for the market but would not be able to relay to a customer with any degree of accuracy information pertaining to the distnbution of bids and offers
- the exchange central computei w ill automatically match equal bids and offers on a first come, first ser ed basis thereby executing the transaction
- Each execution report ill include information regarding the date, time, quantity and p ⁇ ce of the transaction
- the exchange central computer will be able to handle a full array of futures orders including straddles, limit orders, and stop orders Because bids and offers are transmitted from the remote terminals directly into the computer there w ill be no chance for an "out trade." that case where a trade is made but the bid and offer do not match Moreover, because trading will be effected solely by the computer, a record will exist of the precise time each order was entered, the precise time it was executed and the precise time an execution report was transmitted
- Each terminal on the system ill be specifically designated to trade a certain number of contracts Position limits for each pnncipal are thus determined by the fiduciary capabilities of the participant Under the present system of trading on exchanges, a member may execute trades far m excess of his limit without detection by the exchange. In the present trading system, limits will be programmed into each individual terminal thus further eliminating the possibility of "out trades" because an individual trader has exceeded his limits. Dunng trading times live surveillance of the market w ill take place through control terminals at the exchange Information may be fed directly into the surveillance system to detect the patterns of trading which may be manipulative and since all information is recorded as trading takes place, accuracy is assured.
Abstract
Description
Claims
Priority Applications (1)
Application Number | Priority Date | Filing Date | Title |
---|---|---|---|
AU63951/00A AU6395100A (en) | 1999-08-03 | 2000-08-01 | System, method, and article of manufacture for estimating a price of a limit order |
Applications Claiming Priority (6)
Application Number | Priority Date | Filing Date | Title |
---|---|---|---|
US36599299A | 1999-08-03 | 1999-08-03 | |
US36638399A | 1999-08-03 | 1999-08-03 | |
US36599399A | 1999-08-03 | 1999-08-03 | |
US09/365,992 | 1999-08-03 | ||
US09/365,993 | 1999-08-03 | ||
US09/366,383 | 1999-08-03 |
Publications (3)
Publication Number | Publication Date |
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WO2001009699A2 WO2001009699A2 (en) | 2001-02-08 |
WO2001009699A3 WO2001009699A3 (en) | 2001-08-02 |
WO2001009699A9 true WO2001009699A9 (en) | 2001-09-20 |
Family
ID=27408730
Family Applications (2)
Application Number | Title | Priority Date | Filing Date |
---|---|---|---|
PCT/US2000/020955 WO2001009699A2 (en) | 1999-08-03 | 2000-08-01 | System, method, and article of manufacture for estimating a price of a limit order |
PCT/US2000/020953 WO2001009698A2 (en) | 1999-08-03 | 2000-08-01 | System, method, and article of manufacture for estimating a probability with which a limit order will be filled |
Family Applications After (1)
Application Number | Title | Priority Date | Filing Date |
---|---|---|---|
PCT/US2000/020953 WO2001009698A2 (en) | 1999-08-03 | 2000-08-01 | System, method, and article of manufacture for estimating a probability with which a limit order will be filled |
Country Status (2)
Country | Link |
---|---|
AU (2) | AU6395100A (en) |
WO (2) | WO2001009699A2 (en) |
Families Citing this family (3)
Publication number | Priority date | Publication date | Assignee | Title |
---|---|---|---|---|
US6493682B1 (en) * | 1998-09-15 | 2002-12-10 | Pendelton Trading Systems, Inc. | Optimal order choice: evaluating uncertain discounted trading alternatives |
US8175946B2 (en) | 2008-04-25 | 2012-05-08 | Bloomberg Finance L.P. | System and method for providing the execution probability of a limit order |
AU2018256664A1 (en) * | 2018-11-02 | 2020-05-21 | Australian Bond Exchange Holdings Limited | System and Computer Implemented Method for Facilitating the Transaction and Settlement of a Financial Instrument |
Family Cites Families (13)
Publication number | Priority date | Publication date | Assignee | Title |
---|---|---|---|---|
US3984657A (en) * | 1973-09-18 | 1976-10-05 | Preben Jessen | Stock trend indicator |
JPH01263866A (en) * | 1988-04-15 | 1989-10-20 | Bita:Kk | Stock price data processing system |
JPH0567119A (en) * | 1991-07-12 | 1993-03-19 | Hitachi Ltd | Merchandise analyzing system |
JPH06139227A (en) * | 1992-10-28 | 1994-05-20 | Nippon Telegr & Teleph Corp <Ntt> | Time series predicting device |
AU2241195A (en) * | 1994-04-06 | 1995-10-30 | Morgan Stanley Group Inc. | Data processing system and method for financial debt instruments |
US5940810A (en) * | 1994-08-04 | 1999-08-17 | The Trustees Of Columbia University In The City Of New York | Estimation method and system for complex securities using low-discrepancy deterministic sequences |
IL117424A (en) * | 1995-04-27 | 1999-09-22 | Optimark Tech Inc | Crossing network utilizing satisfaction density profile |
JPH1063634A (en) * | 1996-04-05 | 1998-03-06 | Nec Corp | Method and device for time sequential prediction/ classification |
JPH103465A (en) * | 1996-06-17 | 1998-01-06 | Syst Gijutsu Kenkyusho:Kk | Stock price prediction device |
US6061662A (en) * | 1997-08-15 | 2000-05-09 | Options Technology Company, Inc. | Simulation method and system for the valuation of derivative financial instruments |
US5960407A (en) * | 1996-10-08 | 1999-09-28 | Vivona; Robert G. | Automated market price analysis system |
JPH10207857A (en) * | 1997-01-20 | 1998-08-07 | Fujitsu Ltd | Time-series prediction device |
JPH1125158A (en) * | 1997-06-30 | 1999-01-29 | Ryoichi Ino | Prediction operation processing method for auction successful bid price of used car and prediction operation processor for auction successful bid price of used car |
-
2000
- 2000-08-01 WO PCT/US2000/020955 patent/WO2001009699A2/en active Search and Examination
- 2000-08-01 AU AU63951/00A patent/AU6395100A/en not_active Abandoned
- 2000-08-01 WO PCT/US2000/020953 patent/WO2001009698A2/en active Search and Examination
- 2000-08-01 AU AU63949/00A patent/AU6394900A/en not_active Abandoned
Also Published As
Publication number | Publication date |
---|---|
WO2001009698A3 (en) | 2003-11-13 |
AU6394900A (en) | 2001-02-19 |
WO2001009699A2 (en) | 2001-02-08 |
AU6395100A (en) | 2001-02-19 |
WO2001009698A2 (en) | 2001-02-08 |
WO2001009699A3 (en) | 2001-08-02 |
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