System and method for algorithmic trading strategies

• US 8,571,967 B1
• Filed: 05/18/2010
• Issued: 10/29/2013
• Est. Priority Date: 06/07/2004
• Status: Active Grant

• Current Assignee: Goldman Sachs & Co. LLC (Goldman Sachs Group Incorporated)
• Original Assignee: Goldman Sachs & Company (Goldman Sachs Group Incorporated)
• Inventors: Silverman, Andrew F
• Primary Examiner(s): Akintola, Olabode
• Application Number:
  US12/782,556
• Time in Patent Office: 1,260 Days
• Field of Search: None
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

Various embodiments of the present invention are directed to systems and methods for algorithmic trading strategies and/or systems and methods for use in executing an order directed to a security traded in a market. More particularly, one embodiment of the present invention relates to a method implemented by a programmed computer system for use in executing an order directed to a security traded in a market, comprising: calculating a plurality of expected market impacts associated with execution of the order over a plurality of different time periods; calculating a plurality of expected price risks associated with execution of the order over the plurality of different time periods; calculating a plurality of expected total costs associated with execution of the order over the plurality of different time periods, wherein the plurality of expected total costs are calculated using the plurality of expected market impacts and the plurality of expected price risks; and trading the security via execution of the order over a time period at which the expected total cost is optimal (e.g., minimized).

Claims

1. A security trading system comprising:

a memory;

a processor disposed in communication with said memory, and configured to issue a plurality of processing instructions stored in the memory, wherein the processor issues instructions to;

receive proposed financial transaction data including a proposed security;

obtain expected market impact data and expected price risk data associated with execution of a security trade over a plurality of execution times;

retrieve a trading cost model from a database;

generate expected total cost data associated with execution of the security trade over the plurality of execution times based on the retrieved trading cost model and the expected market impact data and the expected price risk data;

obtain a selection of user'"'"'s risk aversion level;

determine a trading strategy based on the calculated expected total cost data and the selected user'"'"'s risk aversion level,

wherein the selected user'"'"'s risk aversion level is used to determine an objective of the trading strategy, and wherein the trading strategy optimally balances the expected market impacts and the expected price risks;

and execute the proposed financial transaction by trading the security based on the determined trading strategy, wherein the trading strategy comprises a first component and a second component executed in tandem, wherein the first component adjusts trade parameters to maximize spread capture, and the second component determines pockets of liquidity at optimal price points.

2. The system of claim 1, wherein the trading strategy includes trading the security at a time instant with which an associated expected total cost is minimized given the selected risk aversion level.

3. The system of claim 1, wherein the trading cost model includes at least one of the following security characteristics:

order size, expected volume and spreads over execution horizon, market capitalization, listing venue, volatility and price level.

4. The system of claim 1, wherein determining the trading strategy is further based on at least one of the following trading parameters:

volatility, spread, market cap, volume.

5. The system of claim 1, wherein the user'"'"'s risk aversion level is selected by a user.

6. The system of claim 1, wherein the trading strategy comprises an execution over a long horizon when a low user'"'"'s risk aversion is selected,

wherein the objective of the trading strategy under such scenario is to maximize spread capture, reduce market impact and allow for greater price risk.

7. The system of claim 1, wherein the trading strategy provides speedy executions when a high user'"'"'s risk aversion is selected,

wherein the objective of the trading strategy under such scenario is to reduce price risk and allow for greater market impact.

8. The system of claim 1, wherein the trading strategy further comprises a size restriction of the security trade, a minimum duration of the security trade and other optional parameters.

9. The system of claim 8, wherein the minimum duration is 10 minutes.

10. The system of claim 8, wherein the other optional parameters include a start time of the trade, the end time of the trade and a price limit.

11. The system of claim 1, wherein the trading strategy is dynamically adjusted and adapted in accordance with changing market dynamics and deviations from historic patterns.