System and method for smart hedging in an electronic trading environment

• US 7,742,976 B1
• Filed: 05/01/2006
• Issued: 06/22/2010
• Est. Priority Date: 09/30/2005
• Status: Active Grant

• Current Assignee: Trading Technologies International, Inc.
• Original Assignee: Trading Technologies International, Inc.
• Inventors: Mintz, Sagy P., Burns, Michael J., Herz, Eric M., Deitz, Alexander D.
• Primary Examiner(s): Karmis; Stefanos
• Assistant Examiner(s): LEMIEUX, JESSICA
• Application Number:
  US11/415,351
• Time in Patent Office: 1,513 Days
• Field of Search: 705/37
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A system and associated methods are provided for smart hedging in an electronic trading environment. According to one example method, a first order for a first tradeable object and a second order for a second tradeable object are placed based on a spread strategy. Upon receiving an indication that a quantity of the first order is filled, the method involves determining if the second order can be used to offset the quantity filled of the first order by determining if a price of the second order would result in achieving a desired spread price defined for the spread strategy. If the price results in the desired price, the second order is used to offset the quantity filled for the first order in an attempt to achieve the desired spread price. Other tools are provided as well.

Claims

1. A method of trading in an electronic trading environment, the method comprising:

automatically placing by a computing device a first order in an order book of a first electronic matching process corresponding to a first tradeable object, the first order being placed at a first price that is computed based on market conditions in a second tradeable object and a desired spread price;

automatically placing by the computing device a second order in an order book of a second electronic matching process corresponding to the second tradeable object, the second order being placed at a second price that is computed based on market conditions in the first tradeable object and the desired spread price;

receiving by the computing device an indication that a quantity of the first order is filled by the first electronic matching process after the first order and the second order are placed;

determining by the computing device after the first order and the second order are placed whether the second order can be used to offset the quantity filled of the first order by determining if the second price corresponding to the second order would result in achieving a price associated with the desired spread price;

using by the computing device the second order to offset the quantity filled for the first order in an attempt to achieve the desired spread price when the second order has been determined to be at a price level that results in the desired spread price; and

cancelling the second order and placing an offsetting order that achieves the desired spread price when the second order has been determined to not be at a price level that results in the desired spread price.

2. The method of claim 1, wherein the second order is one of a plurality of queue holder orders for the second tradeable object.

3. The method of claim 1, wherein the determining step is further based at least in part on the quantity of the second order.

4. The method of claim 1, further including placing a new order for the second tradeable object when a quantity needed to offset the filled quantity of the first order is greater than an order quantity for the second order.

5. The method of claim 4, wherein a price for the new order is determined at least in part using fractional pay-up ticks.

6. The method of claim 1, wherein a scalping order for the first tradeable object is placed when the indication is received.

7. A method of trading in an electronic trading environment, the method comprising:

receiving by a computing device an indication that at least a portion of a first leg order of a spread has been filled, wherein the spread includes a plurality of leg orders that have been quoted, wherein the plurality of leg orders includes the first leg order for a first tradeable object and a second leg order for a second tradeable object, wherein the indication is received after the first leg order and second leg order have been quoted; and

using by the computing device the second leg order as an offset order for the first leg order when the second leg order has been determined after the first leg order and second leg order have been quoted to be at a price level that results in a desired spread price for the spread; and

cancelling the second leg order and placing an offsetting order that achieves the desired spread price for the spread when the second leg order has been determined to not be at a price level that results in the desired spread price for the spread.

8. The method of claim 7, wherein the second leg order is one of a plurality of queue holder orders for the second tradeable object.

9. The method of claim 7, wherein determining whether the second leg order results in the desired spread price for the spread is based at least in part on the quantity of the second leg order.

10. The method of claim 7, further including placing a new order for the second tradeable object when a quantity needed to offset the filled quantity of the first leg order is greater than an order quantity for the second leg order.

11. The method of claim 10, wherein a price for the new order is determined at least in part using fractional pay-up ticks.

12. The method of claim 7, wherein a scalping order for the first tradeable object is placed when the indication is received.

13. A computer readable medium having stored therein instructions for execution on a computer to perform the following method:

receiving by a computing device an indication that at least a portion of a first leg order of a spread has been filled, wherein the spread includes a plurality of leg orders that have been quoted, wherein the plurality of leg orders includes the first leg order for a first tradeable object and a second leg order for a second tradeable object, wherein the indication is received after the first leg order and second leg order have been quoted; and

using by the computing device the second leg order as an offset order for the first leg order when the second leg order has been determined after the first leg order and second leg order have been quoted to be at a price level that results in a desired spread price for the spread; and

cancelling the second leg order and placing an offsetting order that achieves the desired spread price for the spread when the second leg order has been determined to not be at a price level that results in the desired spread price for the spread.

14. The computer readable medium of claim 13, wherein the second leg order is one of a plurality of queue holder orders for the second tradeable object.

15. The computer readable medium of claim 13, wherein determining whether the second leg order results in the desired spread price for the spread is based at least in part on the quantity of the second leg order.

16. The computer readable medium of claim 13, further including instructions for placing a new order for the second tradeable object when a quantity needed to offset the filled quantity of the first leg order is greater than an order quantity for the second leg order.

17. The computer readable medium of claim 16, wherein a price for the new order is determined at least in part using fractional pay-up ticks.

18. The computer readable medium of claim 13, wherein a scalping order for the first tradeable object is placed when the indication is received.