WO2001062063A2

WO2001062063A2 - Method and apparatus for flexible investment management

Info

Publication number: WO2001062063A2
Application number: PCT/CA2001/000215
Authority: WO
Inventors: Jutta Ipsen
Original assignee: Tradelabs Corporation
Priority date: 2000-02-25
Filing date: 2001-02-23
Publication date: 2001-08-30
Also published as: AU2001237166A1

Description

METHOD AND APPARATUS FOR FLEXIBLE INVESTMENT MANAGEMENT

CROSS REFERENCE TO RELATED APPLICATION

This application claims priority from U.S. provisional application number 60/185,047 filed February 25, 2000, the disclosure of which is incorporated herein by reference.

FIELD OF THE INVENTION

The present invention relates to a method and apparatus for providing flexible investment monitoring, and more specifically, to a method and apparatus for generating notification of an investment condition.

BACKGROUND OF THE INVENTION

When managing investments, investors often use stops as a method of protecting their investment in a security. A stop, or stop order, is an instruction to place an order to sell the security, at market price, if a trade occurs at or below a certain predetermined level (triggering price) . The stop permits an investor that has purchased a security at a given price, for example $100, to attempt to limit the potential loss on that security by placing a stop order to sell the security if the value of the security falls to or below another price, such as

$95. A suitably placed stop also permits an investor that has a security, which is currently priced at more than the original purchase price, to try and insure that a certain profit on the sale is preserved.

The effect of stop orders is often less than optimal and sometimes very undesirable when the market moves fast. Stop orders do not execute at a guaranteed price since they only create a market sell order when the stop price has been reached. The actual price obtained when the security is sold in this manner often is much lower than the triggering or stop price. In volatile or fast moving markets, or when securities experience price movements called "whiplash" or price shocks, stop orders often cause investors to lose their position at very unfavorable prices.

Stops are also inflexible instruments. That is to say, stops are fixed orders that are good until cancelled, or in some circumstances, good until a pre-specified time in the future. An investor can only place or cancel a stop. Investors in practice cannot continuously change a stop as a result of price changes of the underlying security. In order to overcome this problem, investors can closely monitor the investments that are the subject of stops (which eliminates much of the benefit of placing the stop in the first place) .

What is needed is a more flexible way to manage investments.

SUMMARY OF THE INVENTION

It is an object of the present invention to provide a method of generating a notification of a predetermined investment condition relating to an investment in a security. The method comprises obtaining trade data corresponding to the security and determining whether the predetermined investment condition is met. The predetermined investment condition is a function of the profitability of the investment. If the predetermined investment condition is met, a notification indicating that such investment condition has been met will be generated.

It is a further object of the present invention to provide a method of charging a customer for a notification of a predetermined investment condition relating to a security. The method comprises monitoring trade data corresponding to the security to determine whether the predetermined investment condition occurred. Upon determining that the investment condition occurred, a notification to that effect is generated. The notification is then transmitted to the customer and the customer is charged for the transmission of the notification.

A still further object of the present invention is to provide a method of charging a customer for a notification of a predetermined investment condition relating to a security. The method comprises monitoring trade data corresponding to the security to determine whether the predetermined investment condition occurred. Upon determining that the investment condition occurred, a notification to that effect is generated. The notification is transmitted to the customer and the customer is charged for the transmission of the notification.

Another object of the present invention is to provide a system for generating a notification of a predetermined investment condition relating to an investment in a security. The system comprises a computer system, user data and a notification system. The computer system receives input comprising trade data corresponding to the security, and is capable of accessing user data when necessary, to determine when the predetermined investment condition is realized. The notification system is operatively connected to the computer system and provides the notification when the predetermined investment condition is realized. The predetermined investment condition is a function of the profitability of the investment. It is still another object of the present invention to provide a system for ordering a trade based upon the existence of a predetermined investment condition relating to an investment in a security. The system comprises a computer system, user data and a generating system. The computer system receives input comprising trade data corresponding to the security, and is capable of accessing user data when necessary, to determine when the predetermined investment condition is realized. The generating system is operatively connected to the computer system and generates an order for a trade when the predetermined investment condition is realized. The predetermined investment condition is a function of the profitability of the investment.

BRIEF DESCRIPTION OF THE DRAWINGS

Figure 1 is a high level block diagram of an apparatus for carrying out the present invention; and

Figure 2 is a flow diagram depicting an embodiment of the method of the present invention.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENT

Fig. 1 shows a high level block representation of one embodiment of an apparatus capable of carrying out the present invention for providing flexible and automated investment monitoring, and more specifically, for generating notification of an investment condition. A computer system 100 receives as an input, a feed 110 comprising market data. The computer system 100 is adapted to access user data 120, and is also operatively connected to a notification system 130. The notification system may be any type of system capable of notifying a user when a notification condition specified by the user is realized. In a preferred embodiment, the computer system 100 is accessible to the users over the Internet (not shown) .

In general, the apparatus depicted in Fig. 1 may be used to monitor the feed 110 of market data, and to use that data to determine whether the computer system 100 needs to invoke the notification system 130 to notify a user of a condition. To better explain the invention, a simple schema for the user data 120 is described, as follows:

The USER ID is an identifier for the user of the computer system 100. In a preferred embodiment a PASSWORD is used in conjunction with the USER ID to provide security. In one embodiment of the invention, the password is not stored, but instead, a residue of the password is stored to permit authentication of a user without the potential for the misappropriation of the actual password. The use of a USER ID and PASSWORD as a security device is well known in the art.

The CONTACT PROFILE comprises a method for contacting the user when the need arises, and could, for example, contain a beeper number and/or an email address. In a preferred embodiment of the invention, the CONTACT PROFILE may contain a plurality of contact methods, and such methods could be associated with, for example, various times of the day, various days of the week or of the month, various other criteria, or combinations thereof. Finally, one or more STRATEGY PROFILE (s) are stored in the user data 120. The STRATEGY PROFILE comprises at least a SECURITY REFERENCE, a STRATEGY, and a COST BASIS. The SECURITY REFERENCE generally may be a stock symbol, or could be any other reference that can be used to identify a security of interest. The COST BASIS may be the price paid by the user for the security represented by the SECURITY REFERENCE when it was originally purchased, and may include any commissions or fees paid for the purchase. The STRATEGY itself represents the logic and/or conditions under which the notification system 130 should notify a user.

While the above represents a "flat" file database, great variations on the sample schema is within the scope of the invention, and will be apparent to one of ordinary skill in the art.

To initiate the flexible investment monitoring for a given security, a user accesses the computer system 100. In a preferred embodiment, the user accesses the computer system 100 by logging in, a method that is well known to one of ordinary skill in the art. Once having access to the computer system 100, the user specifies the security of interest (e.g., the symbol), the cost basis (e.g., per share) and the user's strategy. In particular, the user specifies the exit strategy the user wishes to associate with the security.

Some discussion of what is meant by a user's strategy is merited. As used herein, a strategy is a mathematical or logical formula that requires, as input, information relating to the security of interest, such as, for example the price or volume and the cost basis. In response to the required inputs, the strategy' s output comprises a true or false condition referred to herein as a notification condition or investment condition. In one embodiment of the invention, if the investment condition is true, a notification must occur; if the investment condition is false, no notification is required. In another embodiment of the invention, if the investment condition is true, a trade order is generated for the security; if the investment condition is false, not trade order is generated. By way of example, a trade order can be an order to buy or sell the security.

In operation, as discussed in more detail below, the exit strategy is checked by the system frequently to see if the notification condition specified by the user materializes. For example, the exit strategy may be checked with every price change of the security, or, as another example, as often as computer resources allow. When the notification condition is met, the user receives a notification. In a preferred embodiment of the invention, the user is notified in accordance with the CONTACT PROFILE, such as, for example, via by email or via pager. It should be noted, however, the notification contemplated by the present invention is not limited to these two specific methods, and any known or even presently unknown means may be employed. As discussed above, the CONTACT PROFILE may (but need not) specify multiple contact methods and conditions of the use of one or more.

In a preferred embodiment, a strategy relating to a particular security would be executed to determine the notification condition automatically whenever the computer system 100 received a transaction for that security from the feed 110.

Turning to Fig. 2, a flow chart is shown for a preferred embodiment of the invention. Trade data is received by computer system 100 over the feed 110 as shown at block 200. Trade data comprises the data representing a trade in a security, and is well known to one of ordinary skill in the art. At decision point 210, a determination is made by the computer system 100 with regard to the existence of any strategies that are related to the received trade data. If the answer to this query is in the negative, i.e. no strategies exist, the computer system 100 awaits more trade data to arrive over the feed 110 and the process is repeated.

If on the other hand, the answer to the query is in the affirmative, i.e. strategies exist for the security represented by the trade data, the computer system 100 proceeds to the logic 220 that is carried out for each strategy maintained for such security.

When processing each strategy, the logic 220 first determines whether there is a notification condition at decision point 222. In order to accomplish this, the logic 220 retrieves the appropriate user data 120 comprising the strategy, and executes the strategy mathematics and/or logic. For strategies that require historical variables, the logic 220 may also retrieve existing STRATEGY VARIABLES from the user data 120. Similarly, the logic 220 can store resulting STRATEGY VARIABLES to the user data 120 each time it has processed a strategy.

If the notification condition is false, the logic 220 proceeds to the next strategy related to the currently received trade data. However, where the notification condition at decision point 222 is true, the logic 220 next proceeds to determine the user at step 224. Once the user has been determined, the logic 220 then must determine the appropriate method of contacting the user at step 226. The appropriate methods employed to contact the user are discussed above.

Finally, at step 228, the notification system 130 is instructed to contact the user using the contact method determined in step 226. The logic 220 thereafter proceeds to process the next strategy related to the currently received trade data.

Once all strategies related to the currently received trade data are processed, that is the notification condition is determined and acted upon for each, the computer system 100 awaits further trade data from the feed 110.

The present invention differs from traditional triggering systems in numerous ways, not the least of which is that the present invention utilizes the cost basis and profit (instead of price or volume data) for its operation. In addition, a review of the art of triggering systems teaches that data must be aggregated before checking for a condition. The present invention preferably executes each strategy every time the security related to that strategy trades.

Although the simple example above could also be achieved using a traditional stop order, and, web-based systems that warn the user of a price and/or volume target/trigger level being reached are well known -- the present invention provides a number of advantages over such known systems because it is capable of tracking profit and/or loss, and not simply the price and/or volume. A number of examples of the above follow. Assume that the security of interest for a given strategy is IBM, that the cost basis is $100, and that the strategy is, for example, to limit loss to 5% of the basis. In this simple example, the system would, in effect, monitor market data to determine whether the price fell below $95, that is, 5% of the basis has been lost. (For ease of description, the strategy is presented in logical English; in a preferred embodiment an unambiguous mathematics-like syntax would be used.) When the notification condition is true, the notification occurs.

What is fundamentally different between the present invention and the systems presently existing for monitoring investments is that the inventive system permits the user to develop a strategy at any time that can track profit and/or loss rather than just price and/or volume. In other words, the inventive system can track the difference between the current price and the cost basis of a security (profit), and can therefore enable "exit" strategies based on profit and/or loss as well as many other variables . Consider another example still assuming that the security of interest for the given strategy is IBM, and that the cost basis is $100. In this example, the user can enable a strategy based on "draw-down" by using the novel system of the invention to track the difference between the current price and the cost price of a security. (A draw-down is the amount lost from a maximum gain.) Accordingly, in this example, the strategy would be to limit loss to a $5 draw-down. Each time trade data for IBM is received, the strategy is run to determine whether a notification condition has occurred. Since the "draw-down" strategy requires that the "maximum gain" be tracked, on each execution (and preferably on each trade for the security) , the STRATEGY VARIABLE would be updated to contain the maximum gain. As a result, the strategy output can be determined.

More sophisticated strategies can also be developed. For example, using the present system a strategy can be run to generate a notification condition when the draw-down is a percentage of the maximum gain. In other words, the system can generate a notification when, for example, half of the profit is yielded. Thus, if a stock were to go from $100 to $106 back to $103, the notification condition would be true. On the other hand, if it were to go from $100 to $105 back to $103, the notification condition would be false. While the notification described above refers to notification of a user - it is within the scope of the invention to use the positive result of a notification condition to cause a notification to a computer or system that will itself automatically act on the notification. In other words, the result of a notification condition being true may automatically execute a trade.

The present invention is equally applicable to long and short positions .

The method and apparatus of the present invention can be used in a novel manner to generate notification of an investment condition. In a preferred embodiment, the notification system 130 creates an output that is then delivered to an accounting system (not shown) . The output can indicate to the accounting system the user for whom the notification condition occurred. In addition, the output can indicate to the accounting system the symbol, the time and date of the notification condition and/or a description of the delivery method. The generation of such an output permits a novel method of billing customers for the notification of an investment condition, namely, billing customers based upon the notification of the condition. It is also possible to have the price charged depend upon the method or time of the notification. While the foregoing describes and illustrates the preferred embodiment of the present invention and suggests certain modifications thereto, those of ordinary skill in the art will recognize that still further changes and modifications may be made therein without departing from the spirit and scope of the invention. Accordingly, the above description should be construed as illustrative and not in a limiting sense, the scope of the invention being defined by the following claims.

Claims

I CLAIM :

1. A method of generating notification of a predetermined investment condition relating to an investment in a security, the method comprising:

obtaining trade data corresponding to the security;

determining whether the predetermined investment condition is met, wherein the predetermined investment condition is a function of the profitability of the investment; and

if the predetermined investment condition is met, generating a notification that such investment condition has been met .

2. The method of claim 1 wherein the step of determining whether the predetermined investment condition is met further comprises the steps of:

determining whether a strategy for the security exists, the strategy being related to the predetermined investment condition;

obtaining user data that comprises the strategy; and executing the strategy by applying the user data and trade data to the strategy to determine if the predetermined investment condition is met.

3. The method claimed in claim 1, further comprising the steps of:

predetermining the predetermined investment condition relating to an investment security, wherein the predetermination is made by a third party; and

if the predetermined investment condition is met, sending the notification to the third party.

4. The method claimed in claim 3, further comprising the steps of:

sending an indication to an accounting system that notification has been sent to the third party; and

charging the third party for each notification sent thereto .

5. The method claimed in claim 1 wherein the step of generating a notification that the investment condition has been met comprises sending an email.

6. The method claimed in claim 1 wherein the step of generating a notification that the investment condition has been met comprises sending a page.

7. A method of charging a customer for notification of a predetermined investment condition relating to a security, the method comprising the steps of:

monitoring trade data corresponding to the security to determine whether the predetermined investment condition occurred;

upon determining that the investment condition occurred, generating a notification that the investment condition occurred;

transmitting the notification to the customer; and

charging the customer for the transmission of the notification .

8. The method recited in claim 7, wherein the step of charging the customer comprises:

creating an output that is delivered to an accounting system, the output including the identity of the customer for whom the notification occurred; using the accounting system to charge the customer for the occurrence of the notification.

9. The method recited in claim 7, wherein the output delivered to the accounting system further comprises a security symbol and a time and date corresponding to the transmission of the notification.

10. The method recited in claim 7, wherein the output delivered to the accounting system further comprises a description of the delivery method.

11. A method of ordering a trade based upon the existence of a predetermined investment condition relating to an investment in a security, the method comprising:

obtaining trade data corresponding to the security;

if the predetermined investment condition is met, generating an order for a trade with respect to the security.

12. The method claimed in claim 11, further comprising the steps of: predetermining the predetermined investment condition relating to an investment security, wherein the predetermination is made by a third party;

if the predetermined investment condition is met,

sending the notification to the third party;

13. The method claimed in claim 12, further comprising the steps of:

charging the third party for each notification sent thereto .

14. The method claimed in claim 11 wherein the step of generating a notification that the investment condition has been met comprises sending an email.

15. The method claimed in claim 11 wherein the step of generating a notification that the investment condition has been met comprises sending a page.

16. A system for generating a notification of a predetermined investment condition relating to an investment in a security, the system comprising: a computer system for receiving input, the input comprising trade data corresponding to the security;

user data, the user data being accessible by the 80 computer system; and

a notification system for providing the notification when the predetermined investment condition is realized, the predetermined investment condition being a function of the profitability of the investment, the notification system being 85 operatively connected to the computer system.

17. The system of claim 16 wherein the user data comprises :

a user identification for identifying the user;

a contact profile comprising a method for contacting 90 the user when the predetermined investment condition is realized; and

a strategy profile for the user, the strategy profile comprising a security reference, a strategy and a cost basis.

18. A system for ordering a trade based upon the

95 existence of a predetermined investment condition relating to an investment in a security, the system comprising: a computer system for receiving input, the input comprising trade data corresponding to the security;

user data, the user data being accessible by the 100 computer system; and

a generating system for generating an order for a trade when the predetermined investment condition is realized, the predetermined investment condition being a function of the profitability of the investment, the generating system being 105 operatively connected to the computer system.