System and method for smart hedging in an electronic trading environment

• US 7,747,510 B1
• Filed: 09/30/2005
• Issued: 06/29/2010
• 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 L
• Application Number:
  US11/241,716
• Time in Patent Office: 1,733 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:

receiving by a computing device a definition for a spread strategy comprising at least a first tradeable object and a second tradeable object;

receiving by the computing device a desired spread price;

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

cancelling the second order at the second price when the second order would not result in achieving the price associated with the desired spread price and placing a third order at a third price that would result in achieving the price associated with the desired spread price.

2. The method of claim 1, wherein a quantity for the third order is determined based on the spread strategy and further based on the quantity filled for the first order.

3. The method of claim 1, further comprising:

determining whether a quantity associated with the second order is sufficient to offset the filled portion of the first order, and if not;

submitting a fourth order at the second price, the fourth order having an order quantity that is sufficient to offset the quantity filled for the first order.

4. The method of claim 1, further comprising:

automatically sending a plurality of queue holder orders for the second tradeable object at a plurality of prices to be placed in the order book of the second electronic matching process corresponding to the second tradeable object, wherein the plurality of prices are based on the second price, and wherein the plurality of queue holder orders are placed in an attempt to provide a better queue position if the second order is re-priced to one of the plurality of prices based on the spread strategy.

5. The method of claim 4, wherein a quantity corresponding to each of the plurality of queue holder orders is equal to an order quantity of the second order.

6. The method of claim 5, wherein if the first order is not fully filled, changing the quantity of each of the plurality of queue holder orders to an order quantity that is sufficient to offset the remaining order quantity of the first order.

7. The method of claim 4, further comprising:

computing a new price for the second order wherein the new price is computed based on updated market conditions corresponding to the at least first tradeable object and further based on the desired spread price; and

using a queue holder order at the new price of the plurality of queue holder orders for the second order.

8. The method of claim 1, further comprising:

automatically sending a plurality of queue holder orders for the first tradeable object at a plurality of prices to be placed in the order book of the first electronic matching process corresponding to the first tradeable object, wherein the plurality of prices are based on the first price, and wherein the plurality of queue holder orders are placed in an attempt to provide a better queue position if the first order is re-priced to one of the plurality of prices based on the spread strategy.

9. The method of claim 8, wherein an order quantity corresponding to each of the plurality of queue holder orders is equal to an order quantity of the first order.

10. The method of claim 9, wherein if the second order is not fully filled, changing the order quantity of each of the plurality of queue holder orders corresponding to the first order to an order quantity that is sufficient to offset the remaining order quantity of the second order.

11. The method of claim 8, further comprising:

computing a new price for the first order wherein the new price is computed based on updated market conditions corresponding to the at least second tradeable object and further based on the desired spread price; and

using a queue holder order at the new price of the plurality of queue holder orders for the first order.

12. The method of claim 1, further comprising:

when the quantity of the first order is partially filled, computing a fourth price for a fourth order based on updated market conditions corresponding to at least the first tradeable object and based on the desired spread price;

changing an order quantity of the second order to a new quantity that is sufficient to offset the quantity of the first order that was partially filled; and

automatically placing the fourth order for the second tradeable object in the order book of the second electronic matching process corresponding to the second tradeable object, the fourth order being placed at the fourth price.

13. An apparatus for trading in an electronic trading environment, comprising:

a microprocessor;

a computer readable medium operatively associated with the microprocessor and in communication with the microprocessor;

a program of instructions for the microprocessor stored in the computer readable medium for causing the microprocessor to;

receive a definition for a spread strategy comprising at least a first tradeable object and a second tradeable object;

receive a desired spread price;

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

automatically place 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;

receive 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;

determine 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;

use 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 would result in achieving the price associated with the desired spread price; and

cancel the second order at the second price when the second order would not result in achieving the price associated with the desired spread price and place a third order at a third price that would result in achieving the price associated with the desired spread price.

14. The apparatus of claim 13, wherein a quantity for the third order is determined based on the spread strategy and further based on the quantity filled for the first order.

15. The apparatus of claim 13, further comprising a program of instructions for causing the microprocessor to:

determine whether a quantity associated with the second order is sufficient to offset the filled portion of the first order, and if not;

submit a fourth order at the second price, the fourth order having an order quantity that is sufficient to offset the quantity filled for the first order.

16. The apparatus of claim 13, further comprising a program of instructions for causing the microprocessor to:

automatically send a plurality of queue holder orders for the second tradeable object at a plurality of prices to be placed in the order book of the second electronic matching process corresponding to the second tradeable object, wherein the plurality of prices are based on the second price, and wherein the plurality of queue holder orders are placed in an attempt to provide a better queue position if the second order is re-priced to one of the plurality of prices based on the spread strategy.

17. The apparatus of claim 16, wherein a quantity corresponding to each of the plurality of queue holder orders is equal to an order quantity of the second order.

18. The apparatus of claim 17, wherein if the first order is not fully filled, changing the quantity of each of the plurality of queue holder orders to an order quantity that is sufficient to offset the remaining order quantity of the first order.

19. The apparatus of claim 16, further comprising a program of instructions for causing the microprocessor to:

compute a new price for the second order wherein the new price is computed based on updated market conditions corresponding to the at least first tradeable object and further based on the desired spread price; and

using a queue holder order at the new price of the plurality of queue holder orders for the second order.

20. The apparatus of claim 13, further comprising a program of instructions for causing the microprocessor to:

automatically send a plurality of queue holder orders for the first tradeable object at a plurality of prices to be placed in the order book of the first electronic matching process corresponding to the first tradeable object, wherein the plurality of prices are based on the first price, and wherein the plurality of queue holder orders are placed in an attempt to provide a better queue position if the first order is re-priced to one of the plurality of prices based on the spread strategy.

21. The apparatus of claim 20, wherein an order quantity corresponding to each of the plurality of queue holder orders is equal to an order quantity of the first order.

22. The apparatus of claim 20, wherein if the second order is not fully filled, a program of instructions for causing a microprocessor to change the order quantity of each of the plurality of queue holder orders corresponding to the first order to an order quantity that is sufficient to offset the remaining order quantity of the second order.

23. The apparatus of claim 20, further comprising a program of instructions for causing a microprocessor to:

compute a new price for the first order wherein the new price is computed based on updated market conditions corresponding to the at least second tradeable object and further based on the desired spread price; and

use a queue holder order at the new price of the plurality of queue holder orders for the first order.