System and method for smart hedging in an electronic trading environment

• US 8,185,468 B2
• Filed: 05/06/2010
• Issued: 05/22/2012
• Est. Priority Date: 09/30/2005
• Status: Active Grant

• Current Assignee: Trading Technologies International, Inc.
• Original Assignee: Trading Technologies International, Inc.
• Inventors: Burns, Michael J., Mintz, Sagy P., Herz, Eric M., Dietz, Alexander D.
• Primary Examiner(s): Lemieux, Jessica
• Application Number:
  US12/774,930
• Publication Number:
  US 20100217703A1
• Time in Patent Office: 747 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 system for trading in an electronic trading environment, the system comprising:

a computing device adapted to receive a definition for a spread strategy comprising at least a first tradeable object and a second tradeable object,

wherein the computing device is adapted to receive a desired spread price,

wherein the computing device is adapted to 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,

wherein the computing device is adapted to 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,

wherein the computing device is adapted to 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,

wherein the computing device is adapted to 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,

wherein the computing device is adapted to 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

wherein the computing device is adapted to 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 placing a third order at a third price that would result in achieving the price associated with the desired spread price.

2. The system 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 system of claim 1, wherein the computing device is further adapted 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.

4. The system of claim 1, wherein the computing device is further adapted 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.

5. The system 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 system of claim 5, wherein the computing device is further adapted to change, if the first order is not fully filled, 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 system of claim 4, wherein the computing device is further adapted 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 wherein the computing device is further adapted to use a queue holder order at the new price of the plurality of queue holder orders for the second order.

8. The system of claim 1, wherein the computing device is further adapted 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.

9. The system 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 system of claim 9, wherein the computing device is further adapted to change, if the second order is not fully filled, 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 system of claim 8, wherein the computing device is further adapted 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 wherein the computing device is further adapted to use a queue holder order at the new price of the plurality of queue holder orders for the first order.

12. The system of claim 1, wherein the computing device is further adapted to compute, when the quantity of the first order is partially filled, 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, wherein the computing device is further adapted to change 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 wherein the computing device is further adapted to automatically place 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. A system for trading in an electronic trading environment, the system comprising:

a computing device adapted to receive 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,

wherein the computing device is adapted to use 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

wherein the computing device is adapted to cancel the second leg order and place 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 system of claim 13, wherein the second leg order is one of a plurality of queue holder orders for the second tradeable object.

15. The system of claim 13, wherein the computing device is adapted to determine 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 system of claim 13, wherein the computing device is further adapted to place 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 system of claim 16, wherein the computing device is further adapted to determine a price for the new order at least in part using fractional pay-up ticks.

18. The system of claim 13, wherein the computing device is further adapted to place a scalping order for the first tradeable object when the indication is received.