Apparatus and method for commodity trading with automatic odd lot hedging

• US 8,538,858 B2
• Filed: 04/12/2011
• Issued: 09/17/2013
• Est. Priority Date: 02/23/2011
• Status: Active Grant

• Current Assignee: Farms Technology, LLC (Corteva, Inc.)
• Original Assignee: Farms Technology, LLC (Corteva, Inc.)
• Inventors: Sutton, Heath E., Tatge, Jason G.
• Primary Examiner(s): Khattar, Rajesh
• Application Number:
  US13/084,864
• Publication Number:
  US 20120215672A1
• Time in Patent Office: 889 Days
• Field of Search: 705/35, 705/36, 705/37, 705/38, 705/39, 705/40
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

Apparatus and method for trading commodities with automatic hedging for odd lot offers. The apparatus automatically accepts odd lot offers on behalf of buyers and aggregates them with other odd lot offers of the same commodity symbol until there are enough bushels to reach a predetermined threshold, or “tipping point,” which causes the system to automatically calculate the optimum number of full lot futures contracts to sell at the market price in order to offset risk associated with accepting the odd lot offers, and to automatically secure the optimum number of full lot futures contracts. The system reduces or eliminates situations where no transactions are executed due to the market'"'"'s failure to reach a certain price, and reduces the buyers'"'"' exposure to slippage on accumulated odd lots.

Claims

1. An apparatus for trading commodities, comprising:

(a) a microprocessor;

(b) a memory;

(c) a database in the memory, the database having a field that stores a wait counter W indicating a total number of units of the commodity currently waiting to be hedged on behalf of a buyer;

(d) a user-specified tipping point T in the memory indicating a minimum number of units of the commodity that must currently be waiting to be hedged before a request to sell a full lot futures contract for the commodity can be executed on behalf of the buyer, the tipping point T being a value that is greater than zero and less than a full lot size;

(e) a server that receives and stores in the database an offer from a seller to sell a quantity Q of the commodity to the buyer, wherein the quantity Q comprises an odd lot size;

(f) an interface to a futures contract service, the futures contract service being configured automatically sell one or more full lot futures contracts for said commodity; and

(g) an odd lot hedging module, in the memory, having program instructions that, when executed by the microprocessor, cause the microprocessor to automatically invoke the interface to sell said one or more full lot futures contracts, at a market price, when the sum of said wait counter W and said quantity Q is greater than or equal to the tipping point T.

2. The apparatus of claim 1, wherein the program instructions in the odd lot hedging module cause the microprocessor to automatically invoke the interface to sell N full lot futures contracts when the sum of said wait counter W and said quantity Q is greater than or equal to the tipping point T.

3. The apparatus of claim 1, wherein the program instructions in the odd lot hedging module are arranged to prevent the microprocessor from invoking the interface to sell the one or more full lot futures contracts while the sum of said wait counter W and said quantity Q is less than the tipping point T.

4. The apparatus of claim 1, further comprising:

(h) a full lot size F, stored in the memory, indicating the size of a full lot futures contract for the commodity;

(i) wherein the program instructions in the odd lot hedging module cause the microprocessor to automatically calculate a number N of full lot futures contracts to sell according to the formula

N=floor((F−

T+W)/F).

5. The apparatus of claim 1, wherein

the database further includes a field for storing a position counter P indicating the buyer'"'"'s current trading position for the commodity;

and

the program instructions in the odd lot hedging module are configured to cause the microprocessor to invoke the interface to sell said N futures contracts based at least in part on the value of position counter P.

6. The apparatus of claim 5, wherein

the database further includes a field that stores a hedge counter H indicating a total number of odd lot units of the commodity currently hedged on behalf of the buyer;

and

the program instructions in the odd lot hedging module are further configured to cause the microprocessor to invoke the interface to sell said N full lot futures contracts based at least in part on the current value of the hedge counter H.

7. The apparatus of claim 6, wherein

the database further includes a field that stores a mode of operation M indicating whether offers to sell the commodity to the buyer may be accepted on behalf of the buyer prior to securing a sufficient number of futures contracts to hedge the offers;

the odd lot hedging module includes program instructions that, when executed by the microprocessor, cause the microprocessor to determine whether a sufficient number of futures contracts have been secured to hedge the quantity Q in the offer based on the current values of the position counter P, the hedge counter H and the quantity Q; and

the program instructions in the odd lot hedging module will not permit the microprocessor to accept the offer until;

(i) the sufficient number of futures contracts have been secured to hedge the quantity Q, or (ii) the current value of the mode of operation M indicates that offers can be accepted on behalf of the buyer prior to securing the sufficient number of futures contracts to hedge the offers.

8. The apparatus of claim 7, wherein the odd lot hedging module further includes program instructions that, when executed by the microprocessor, cause the microprocessor to calculate new values for the wait counter W, the position counter P and the hedge counter H based on the order having been executed by the futures contract service, and store the new values in the corresponding fields of the database.

9. The apparatus of claim 7, wherein:

the database further includes a field for storing an offer state indicating whether the offer is currently waiting to be hedged or currently bought; and

the odd lot hedging module further comprises program instructions that, when executed by the microprocessor, cause the microprocessor to;

(i) compare the value of the position counter P to the sum of the quantity Q and the hedge counter H

(ii) when the position counter P is less than the sum of the additional units Q and the hedge counter H, set the value of the offer state field to indicate that the offer is currently waiting to be hedged, and

(iii) when the position counter P is greater than or equal to the sum of the additional units Q and the hedge counter H, set the value of the offer state field to indicate that the offer is currently bought.

10. The apparatus of claim 1, further comprising:

(h) a price feed interface that repetitively receives an updated commodity exchange price for the commodity;

(i) a trade eligibility field in the database for storing a value indicating whether the offer is eligible for a trade; and

(j) a matching module having program instructions that, when executed by the processor, causes the microprocessor to (i) calculate a cash price for the buyer based on a change to the updated commodity exchange price received via the price feed interface, and (ii) set the trade eligibility field in the database to indicate that the offer is eligible for a trade when the calculated cash price for the buyer is equal to the offer price;

wherein the odd lot hedging module further comprises program instructions that, when executed by the microprocessor, will not permit the microprocessor to invoke the interface to sell a futures contract corresponding to the odd lot quantity Q in the offer unless the trade eligibility field indicates the offer is eligible for a trade.

11. The apparatus of claim 10, wherein

the web server receives and stores in the database a bid from the buyer to buy the commodity, said bid including a buyer basis;

and

the program instructions in the matching module cause the microprocessor to calculate the cash price for the buyer by adding the buyer basis received from the buyer to the updated commodity exchange price received via the price feed interface.

22. The apparatus of claim 1, wherein the tipping point T has a value that is equal to about half of the size of a full lot.

23. The method of claim 11, wherein the tipping point T has a value that is equal to about half of the size of a full lot.

12. A method for trading commodities using a microprocessor, a memory, a database in the memory, and an interface to a futures contract service configured to automatically sell one or more full lot futures contracts for said commodity, the method comprising:

(a) storing in the database a wait counter W indicating a total number of units of the commodity currently waiting to be hedged on behalf of a buyer;

(b) storing in the memory a user-specified tipping point T indicating a minimum number of units of the commodity that must currently be waiting to be hedged before a request to sell one or more full lot futures contract for the commodity can be executed on behalf of the buyer, the tipping point T being a value that is greater than zero and less than a full lot size;

(c) receiving and storing in the database an offer from a seller to sell a quantity Q of the commodity to the buyer, wherein the quantity Q comprises an odd lot size; and

(d) executing program instructions on the microprocessor to cause the microprocessor to automatically invoke the interface to sell said one or more full lot futures contract, at a market price, when the sum of said wait counter W and said quantity Q is greater than or equal to the tipping point T.

13. The method of claim 12, further comprising executing program instructions on the microprocessor to cause the microprocessor to determine the number N of full lot futures contracts to sell.

14. The method of claim 13, further comprising executing program instructions by the microprocessor that cause the microprocessor to automatically calculate a number N of full lot futures contracts to sell according to the formula

N=floor((F−

T+W)/F).

15. An apparatus for trading commodities, comprising:

(a) a microprocessor;

(b) a memory;

(c) a database in the memory having fields that store a wait counter W for a buyer, the wait counter W indicating a total number of units of the commodity currently waiting to be hedged on behalf of the buyer, a hedge counter H for the buyer, the hedge counter H indicating a total number of units of the commodity currently hedged for the buyer, and a position counter P for the buyer, the position counter P indicating the buyer'"'"'s current trading position for the commodity;

(d) a user-specified tipping point T in the memory indicating a minimum number of units of the commodity that must be in a waiting state for the buyer before a request to sell a full lot futures contract for the commodity can be executed on behalf of the buyer, the tipping point T being a value that is greater than zero and less than a full lot size;

(e) a customer interface that permits electronic communication with a buyer trading device and a seller trading device;

(f) a web server that receives and stores in the database a bid received from the buyer trading device, via the customer interface, to buy additional units of the commodity, and an offer received from the seller trading device, via the customer interface, to sell additional units of the commodity to the buyer, said bid having a buyer basis, and said offer having an offer price and an odd lot size Q;

(g) a price feed interface that repetitively receives an updated commodity exchange price for the commodity;

(h) an electronic interface to a futures contract service configured to automatically sell one or more full lot futures contracts for the commodity, at a market price; and

(i) a set of program modules in the memory, comprising

(1) a matching module having program instructions that, when executed by the processor, causes the microprocessor to (i) calculate a cash price for the buyer each time the updated commodity exchange price received over the price feed changes in value by adding the buyer basis in the buyer'"'"'s bid to the updated commodity exchange price, and (ii) mark the offer as eligible for a trade when the calculated cash price for the buyer is equal to the offer price, and

(2) an odd lot hedging module having program instructions that, when executed by the microprocessor, causes the microprocessor to invoke the futures contract service to sell a number N of full lot futures contracts when the sum of the odd lot size Q and the wait counter W is equal to or greater than the tipping point T.

16. The apparatus of claim 15, wherein the odd lot hedging module further comprises:

a full lot size F, stored in the memory, indicating the size of a full lot futures contract for the commodity; and

program instructions configured to cause the microprocessor to automatically calculate said number N of full lot futures contracts to sell according to the formula;

N=floor((F−

T+W)/F).

17. A method for trading commodities using a microprocessor, a memory and a customer database, comprising:

(a) storing in the database a wait counter W for a buyer, the wait counter W indicating a total number of units of the commodity currently waiting to be hedged on behalf of the buyer, a hedge counter H for the buyer, the hedge counter H indicating a total number of units of the commodity currently hedged for the buyer, and a position counter P for the buyer, the position counter P indicating the buyer'"'"'s current trading position for the commodity;

(b) storing in the memory a full lot size F indicating the size in units of a full lot futures contract for the commodity, and a user-specified tipping point T indicating a minimum number of units of the commodity that must be in a waiting state for the buyer before a request to sell a full lot futures contract for the commodity can be executed on behalf of the buyer, the tipping point T being a value that is greater than zero and less than a full lot size;

(c) establishing customer communications channel that permits electronic communication with a buyer trading device and a seller trading device;

(d) receiving and storing in the database a bid received from the buyer trading device, via the customer interface, to buy additional units of the commodity, and an offer received from the seller trading device, via the customer interface, to sell additional units of the commodity to the buyer, said bid having a buyer basis, and said offer having an offer price and an odd lot size Q;

(e) repetitively receiving an updated commodity exchange price for the commodity;

(f) establishing an electronic interface to a futures contract service configured to automatically sell a full lot futures contract for the commodity; and

(g) executing program instructions on the microprocessor to cause the microprocessor to

(1) automatically calculate a cash price for the buyer based on a change in the updated commodity exchange price by adding the buyer basis in the buyer'"'"'s bid to the updated commodity exchange price,

(2) automatically mark the offer as eligible for a trade when the calculated cash price for the buyer is equal to the offer price,

(3) automatically calculate a number N of full lot futures contracts to sell based on current values for the tipping point T, the wait counter W, the hedge counter H and the position counter P, and

(4) automatically invoke the interface to sell N full lot futures contracts at a market price when the sum of the odd lot size Q and the wait counter W is equal to or greater than the tipping point T, and

(5) after the N full lot futures contracts are sold, automatically modifying the database to update the position counter P, the wait counter W and the hedge counter H.

18. The method of claim 17, executing program instructions by the microprocessor to cause the microprocessor to:

store the size F of a full lot futures contract for the commodity in the memory; and

automatically calculate said N number of full lot futures contracts according to the formula;

N=floor((F−

T+W)/F).

24. The non-transitory computer-readable storage medium of claim 18, wherein the tipping point T has a value that is equal to about half of the size of a full lot.

19. A non-transitory computer-readable storage medium with an executable program stored thereon, wherein the program includes instructions configured to cause a microprocessor to perform the following steps:

(a) storing in a database a wait counter W indicating a total number of units of the commodity currently waiting to be hedged on behalf of a buyer;

(b) storing in a memory a user-specified tipping point T indicating a minimum number of units of the commodity that must currently be waiting to be hedged before a request to sell one or more full lot futures contract for the commodity can be executed on behalf of the buyer, the tipping point T being a value that is greater than zero and less than a full lot size;

(c) receiving and storing in the database an offer from a seller to sell a quantity Q of the commodity to the buyer, wherein the quantity Q comprises an odd lot size; and

(d) invoking an interface to a futures contract service to sell said one or more full lot futures contracts, at a market price, when the sum of said wait counter W and said quantity Q is greater than or equal to the tipping point T.

20. The non-transitory computer-readable storage medium of claim 19, wherein the program further includes instructions configured to cause the microprocessor to determine a number N of full lot futures contracts to sell.

21. The non-transitory computer-readable storage medium of claim 20, wherein the program further includes instructions configured to cause the microprocessor to calculate said number N of full lot futures contracts to sell according to the formula

N=floor((F−

T+W)/F).