System and method for money management using a plurality of profit levels in an electronic trading environment

• US 7,707,098 B2
• Filed: 05/29/2003
• Issued: 04/27/2010
• Est. Priority Date: 01/31/2003
• Status: Active Grant

• Current Assignee: Trading Technologies International, Inc.
• Original Assignee: Trading Technologies International, Inc.
• Inventors: West, Robert A., Ziemkiewicz, Peter F., Burns, Michael J., Highland, Ryan J.
• Primary Examiner(s): Karmis; Stefanos
• Assistant Examiner(s): Lemieux; Jessica L
• Application Number:
  US10/447,382
• Publication Number:
  US 20040153392A1
• Time in Patent Office: 2,525 Days
• Field of Search: 705/37
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A system and method for money management in an electronic trading environment are presented. According to one embodiment, a money management application intercepts an order before the order is sent to an exchange, and determines a plurality of P/L levels, based on which the money management application then selects a set of money management parameters to be used to control or modify order parameters before the order is sent to the exchange. The plurality of profit levels may include a net profit level determined based on a trader'"'"'s net position and a current market level, a realized profit level determined based on trader'"'"'s sells and buys associated with the tradeable object, or an open profit level determined based on the realized and net profit levels. The set of money management parameters may include a maximum order quantity and a maximum net position so that, for example, if the order quantity associated with the order is higher than the maximum order quantity associated with the applicable set of money management parameters, the order quantity may be modified to the maximum order quantity.

Claims

1. A method for money management in an electronic trading environment, the method comprising:

receiving market data for a tradeable object from an electronic exchange via a client device, the market data including at least market updates for a current highest bid price for the tradeable object and a current lowest ask price for the tradeable object;

receiving a request to submit an order from the client device to the electronic exchange via a user input associated with the client device, wherein the order has original parameters and the request is for submitting the order to the electronic exchange for order matching according to an execution algorithm of the electronic exchange against at least one other order for the tradeable object submitted to the electronic exchange;

determining a net position for a trader for the tradeable object via a processor associated with the client device, the net position determined according to a difference between a purchased quantity of the tradeable object by the trader during a time period and a sold quantity of the tradeable object by the trader during the time period;

determining a net profit level for the trader for the tradeable object via the processor, the net profit level determined at least in part according to the net position and the current market data for the tradeable object;

determining a set of money management parameters for controlling the order parameters via the processor according to the net profit level; and

prior to submitting the order from the client device to the electronic exchange for order matching according to the execution algorithm of the electronic exchange, filtering the order parameters according to the set of money management parameters via the processor,

where the order is prevented from being submitted to the electronic exchange and being matched against at least one other order for the tradeable object in response to determining to reject the order according to the set of money management parameters,

where at least one of the original parameters is modified to a modified parameter and the order having the modified parameter is submitted from the client device to the electronic exchange in response to determining that the at least one original parameter is modifiable according to the set of money management parameters, and

where the order having original parameters is submitted from the client device to the electronic exchange according to the set of money management parameters.

2. The method of claim 1, wherein the net profit level is determined according to:

Net profit level=(sells−

buys)+(net position×

market price).

3. The method of claim 2, wherein the market data comprises a last traded price.

4. The method of claim 1, wherein the set of money management parameters comprises a maximum order quantity and a maximum net position.

5. The method of claim 4, wherein filtering the order parameters according to the set of money management parameters comprises:

in response to determining that an order quantity associated with the order is higher than the maximum order quantity, modifying the order quantity to the maximum order quantity; and

sending the order for the maximum order to the electronic exchange.

6. The method of claim 4, wherein filtering the order parameters according to the set of money management parameters comprises:

in response to determining that the net position is higher than the maximum net position and that the order would increase the net position, preventing the order from being sent to the electronic exchange.

7. The method of claim 1, where filtering the order parameters comprises defining a plurality of money management filters, wherein each filter is associated with at least one filter criteria comprising at least one profit level, and wherein each filter is further associated with the set of money management parameters comprising a maximum order quantity and a maximum net position, and wherein the plurality of money management filters are applied to the order before the order is sent to the electronic exchange.

8. The method of claim 1, further comprising:

determining an overall net profit level for the trader based on net positions associated with a plurality of tradeable objects traded by the trader and further based on current market levels associated with each of the plurality of tradeable objects; and

determining the set of money management parameters to be used to control the order parameters associated with the order according to the overall net profit level.

9. The method of claim 1, further comprising:

determining a realized profit level based on buys and sells of the trader associated with the tradeable object; and

determining the set of money management parameters according to the realized profit level.

10. The method of claim 9, wherein the realized profit level is determined according to:

Realized profit level=Sells−

Buys.

11. The method of claim 9, further comprising:

determining an open profit level based on the realized profit level and the net profit level; and

determining the set of money management parameters according to the open profit level.

12. The method of claim 11, wherein the open profit level is determined according to:

Open profit level=Net profit level−

Realized profit level.

13. The method of claim 1, further comprising:

defining a plurality of time-based money management parameter sets, wherein each time-based money management set is associated with at least a time-based trigger criteria and at least one money management condition for controlling the order parameters;

determining at least one applicable time-based money management parameter set based on time of day; and

applying at least one money management condition associated with the at least one applicable time-based money management parameter set to the order.

14. The method of claim 1, wherein the set of money management parameters are further determined based on external data.

15. The method of claim 1, wherein the set of money management parameters are further determined based on data being received from at least one electronic exchange.

16. The method of claim 1, further comprising:

determining a profit level associated with a working order; and

selecting the set of money management parameters to be used to control order parameters associated with the order according to the profit level associated with the working order.

17. The method of claim 1 where the client device comprises a distributed network of devices.

18. The method of claim 17 where the distributed network of devices comprises a gateway.

19. A computer readable medium having stored therein instructions that when executed by a processor associated with a client device cause the processor to execute the method comprising:

receiving market data for a tradeable object from an electronic exchange via a client device, the market data including at least market updates for a current highest bid price for the tradeable object and a current lowest ask price for the tradeable object;

receiving a request to submit an order from the client device to the electronic exchange via a user input associated with the client device, wherein the order has original parameters and the request is for submitting the order to the electronic exchange for order matching according to an execution algorithm of the electronic exchange against at least one other order for the tradeable object submitted to the electronic exchange;

determining a net position for a trader for the tradeable object via a processor associated with the client device, the net position determined according to a difference between a purchased quantity of the tradeable object by the trader during a time period and a sold quantity of the tradeable object by the trader during the time period;

determining a net profit level for the trader for the tradeable object via the processor, the net profit level determined at least in part according to the net position and the current market data for the tradeable object;

determining a set of money management parameters for controlling the order parameters via the processor according to the net profit level; and

prior to submitting the order from the client device to the electronic exchange for order matching according to the execution algorithm of the electronic exchange, filtering the order parameters according to the set of money management parameters according to the set of money management parameters via the processor,

where the order is prevented from being submitted to the electronic exchange and being matched against at least one other order for the tradeable object in response to determining to reject the order according to the set of money management parameters,

where at least one of the original parameters is modified to a modified parameter and the order having the modified parameter is submitted from the client device to the electronic exchange in response to determining that the at least one original parameter is modifiable according to the set of money management parameters, and

where the order having original parameters is submitted from the client device to the electronic exchange according to the set of money management parameters.

20. The computer readable medium of claim 19 where the client device comprises a distributed network of devices.

21. The method of claim 20 where the distributed network of devices comprises a gateway.

22. A system for money management in an electronic trading environment, the system comprising:

a market data receiver configured to receive market data for a tradeable object from an electronic exchange via a client device, the market data including at least market updates for a current highest bid price for the tradeable object and a current lowest ask price for the tradeable object;

a trading application configured to transmit an order to the electronic exchange for order matching according to an execution algorithm of the electronic exchange against at least one other order for the tradeable object submitted to the electronic exchange, wherein the order is associated with a tradeable object and has original parameters; and

a money management application configured to dynamically determine at least one profit level based on a net position for a trader and a current market level associated with the tradeable object, and filter parameters associated with the order based on the at least one profit level, according to a plurality of money management parameters prior to submitting the order to the exchange,

where the order is prevented from being submitted to the electronic exchange and being matched against at least one other order for the tradeable object in response to determining to reject the order according to the set of money management parameters,

where at least one of the original parameters is modified to a modified parameter and the order having the modified parameter is submitted from the client device to the electronic exchange in response to determining that the at least one original parameter is modifiable according to the set of money management parameters, and

where the order having original parameters is submitted from the client device to the electronic exchange according to the set of money management parameters.

23. The system of claim 22, wherein the plurality of money management parameters comprises a maximum order quantity and a maximum net position.

24. The system of claim 23, wherein the money management application is further configured to lower an order quantity to the maximum order quantity if the order quantity is higher than the maximum order quantity.

25. The system of claim 22, wherein the plurality of money management parameters are associated with at least one money management filter that is selected based on the at least one profit level.

26. The system of claim 25, wherein the at least one money management filter comprises a time-based filter.

27. The system of claim 23, wherein the at least one money management filter comprises a filter that is further triggered based on data from outside sources.

28. The system of claim 22, wherein the at least one profit level comprises a net profit level determined based on the net position for the trader and a current market level.

29. The system of claim 28, wherein the net profit level is determined according to:

Net profit level=(sells−

buys)+(net position×

market price).

30. The system of claim 28, wherein the money management application is further configured to determine a realized profit level based on sells and buys associated with the tradeable object for the trader, and to use the realized profit level to dynamically determine the set of money management parameters to be applied to the order.

31. The system of claim 30 , wherein the net profit level is determined according to:

Realized profit level=Sells−

Buys.

32. The system of claim 30, wherein the at least one profit level comprises an open profit level determined based on the realized profit level and the net profit level.

33. The system of claim 32, wherein the net profit level is determined according to:

Open profit level=Net profit level−

Realized profit level.

34. The system of claim 22, wherein the money management application is further configured to determine at least one overall profit level based on a plurality of net positions and a plurality of current market levels associated with a plurality of tradeable objects being traded by the trader, wherein the money management application is configured to determine the set of money management parameters to be applied to the order based on the at least one overall profit level.