System and method for risk management using average expiration times
First Claim
1. A method for computing margin requirement during the trading day in an electronic trading system, the method comprising:
- determining by a computing device a total maximum leg position based on maximum leg positions for each of one or more tradeable objects, wherein the maximum leg positions represent a maximum position in each leg;
determining by the computing device a number of total outright positions based on a total filled net long position and a total net short position, wherein the number of total outright positions represents the number of positions that are not considered part of a spread;
determining by the computing device a number of spreads based on the total maximum leg position and the number of total outright positions, wherein the number of spreads represents a generic spread position;
determining by the computing device a first average expiration time based on equivalent buy leg spread positions and filled long positions, and further based on expiration times for the one or more tradeable objects;
determining by the computing device a second average expiration time based on equivalent sell leg spread positions and filled short positions and further based the expiration times for the one or more tradeable objects;
determining by the computing device an average distance based on the first average expiration time and the second average expiration time between the legs corresponding to the one or more tradeable object of the spread;
computing by the computing device a spread margin requirement using the average distance, a first base value, and the number of spreads; and
providing by the computing device the spread margin requirement, wherein a decision to allow an order to be sent to an electronic exchange is based on the spread margin requirement.
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Abstract
A margin requirement is computed while trading. The margin requirement may be calculated while trading because the preferred system takes into account working orders to generate the margin requirement. The on the fly possibility allows the preferred system to provide pre-trade risk calculations, but can also be used to provide post-trade calculations. A generic spread number and the maximum number of outright positions are determined. Average expirations for the generic spread are computed. Using the spread positions, the average expirations and the maximum number of outright positions, a spread margin and an outright margin are calculated, which when summed provide a total margin requirement. Limits based in part on the total margin requirement may be imposed on one or more traders.
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Citations
20 Claims
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1. A method for computing margin requirement during the trading day in an electronic trading system, the method comprising:
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determining by a computing device a total maximum leg position based on maximum leg positions for each of one or more tradeable objects, wherein the maximum leg positions represent a maximum position in each leg; determining by the computing device a number of total outright positions based on a total filled net long position and a total net short position, wherein the number of total outright positions represents the number of positions that are not considered part of a spread; determining by the computing device a number of spreads based on the total maximum leg position and the number of total outright positions, wherein the number of spreads represents a generic spread position; determining by the computing device a first average expiration time based on equivalent buy leg spread positions and filled long positions, and further based on expiration times for the one or more tradeable objects; determining by the computing device a second average expiration time based on equivalent sell leg spread positions and filled short positions and further based the expiration times for the one or more tradeable objects; determining by the computing device an average distance based on the first average expiration time and the second average expiration time between the legs corresponding to the one or more tradeable object of the spread; computing by the computing device a spread margin requirement using the average distance, a first base value, and the number of spreads; and providing by the computing device the spread margin requirement, wherein a decision to allow an order to be sent to an electronic exchange is based on the spread margin requirement. - View Dependent Claims (2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20)
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Specification