Patent Application
20110282776
The present invention relates generally to trading and more specifically to methods for automatically generating an order in an instrument in a specified currency, to computer program products for performing the methods, and to automated trading systems having the methods implemented.
When trading shares and other financial instruments in an automated trading system, both buyers and sellers want to be capable of buying and selling instantly and to get the best possible price. Thus, a very liquid market is desirable since such a market provides for instantaneous trading, low spread, and a price, which reflects the market at each instant.
Sometimes a trader may want to sell or buy a specified volume of a particular financial instrument in another currency than the one used for that instrument in the automated trading system. Typically, the trader has then to give a price in the currency used for that instrument, and then, provided that the order is met on the market, his broker sells or buys the currency used for that instrument depending on whether a sale or a purchase has been made.
Usually, the trader does not have knowledge in advance of the exchange rate for such currency transaction, nor may the trader give conditional orders depending on the exchange rate obtainable. Further, it is believed that the trader does not obtain a price of the exchange rate, which always is the best possible price at the exact moment of the sale or purchase. Typically, the currency transaction and the sale or purchase are performed at different times, and a minor trader may often only obtain a current exchange rate on a day-to-day basis.
A solution to the problems identified above would be to modify the automated trading system to be capable of receiving orders in each instrument in a plurality of currencies and to form an order book for each one of the instruments in each one of the plurality of currencies.
The inventors of the present invention have noted that such a modified automated trading system, even in the case that only two different currencies are supported, leads to a very illiquid market in all but one of the currencies supported.
It is therefore an object of the present invention to provide a method in an automated trading system, which overcomes the problems associated with the prior art and which allows a trader to give an order in an instrument in a currency that is different from the currency normally used for orders in that instrument, and which order is matched with orders received in the currency normally used.
It is in this respect a particular object of the invention to provide such a method, which increases the liquidity on the market.
It is a further object of the invention to provide such a method, which makes use of one order book only for each instrument traded.
It is yet a further object of the invention to provide such a method, which is easy to implement in existing trading systems.
It is still a further object of the invention to provide a software product loadable into the internal memory of a computer for performing the above-identified method when the software product is run on the computer.
It is yet a further object of the present invention to provide an automated trading system for receiving orders in an instrument in a specified currency, and for performing a trade in that instrument when, for a certain volume of the instrument, a bid price matches an ask price, which solves the problems associated with the prior art.
These objects among others are, according to the present invention, attained by methods, computer program products and automated trading systems as claimed in the appended patent claims.
An advantage of the present invention is that the number and sizes of the orders in an instrument, which according to the present invention can be given in a plurality of currencies, will increase. The overall trading will increase to the benefits of the sellers and buyers. Only one order book for each instrument will exist, and thus no fragmentation of liquidity is performed.
Further characteristics of the invention, and advantages thereof, will be evident from the following detailed description of preferred embodiments of the present invention given hereinafter and the accompanying
a-d are schematic highly simplified extracts of an order book of a trading system for a single instrument illustrating principles of the method as illustrated in
a-b are schematic highly simplified extracts of order books of a trading system for an instrument and for a currency, respectively, illustrating principles of the method as illustrated in
With reference to
In a step 11, the algorithm is started, and in a step 12, a current exchange rate between a currency, which is different from a specified currency for a particular instrument, is received. The specified currency is the currency in which the instrument is traded. In a step 13, an order is received in the particular instrument in a currency different from the specified currency from a trader.
Typically, an updated exchange rate between the different currency and the specified currency is received repeatedly and automatically from the currency market or the market maker, and the last received updated exchange rate between the different currency and the specified currency at the time of receiving the order is used as the received current exchange rate. The frequency, at which the updated exchange rate between the different currency and the specified currency is received, may be from several times a second down to once an hour, or even more infrequently.
If the updated exchange rate between the different currency and the specified currency is received repeatedly and automatically from a market maker, this market maker guarantees to perform a currency transaction based on the last received updated exchange rate. Thus, the updated exchange rate as received may be viewed upon as a real time feed of guaranteed exchange rates. Upper limits of the size of the guaranteed currency transaction may exist.
Next, in a step 14, a price of the order in the specified currency is calculated based on the received order and the current exchange rate, and, in a step 15, the order in the instrument is generated in the specified currency and put on the market, i.e. entered into the order book for that instrument.
Three different possible actions may then be performed. The order may, in a step 16, be removed from the order book, e.g. in response to a request made by the trader. Alternatively, the order is, in a step 17, met by another order on the market, whereupon a trade in the instrument and a currency transaction are performed concurrently. After the order has been removed or been met the inventive algorithm is, in a step 18, ended.
A third possibility is that, in a step 19, an updated exchange rate between the different currency and the specified currency is received while the order is in the order book. In such instance, the generated order is, in a step 20, adjusted to reflect the updated exchange rate received, i.e. the earlier order is removed from the order book and the adjusted order is entered into the order book, after which the algorithm is returned back to a position immediately after step 15. The steps 19 and 20 comprise a loop for adjusting the generated order each time an updated exchange rate between the different currency and the specified currency is received.
The order received from the trader may be a bid and in such instance the exchange rate between the different currency and the specified currency is a buying price for buying the specified currency (with payment effectuated in the different currency). Correspondingly, if the order received from the trader is an offer, the exchange rate between the different currency and the specified currency is a selling price for selling the specified currency.
It shall be appreciated by the man skilled in the art that the present invention may provide for receiving orders in a selected group of currencies for each different instrument traded. An updated exchange rate is received for each combination of different currency and specified currency supported. Typically, the invention may provide for that orders in some or all of the instruments traded in the automated trading system can be receive in about 2-5 currencies.
It shall further be appreciated that the trader may continuously follow the updated exchange rates in order to also be capable to initiate an order depending on the current exchange rate, i.e. a favorable exchange rate may encourage the initiation of an order, whereas a less favorable exchange rate may restrain the initiation of the order.
By means of the inventive algorithm described, including the steps of receiving the current exchange rate between the currency other than the specified currency and the specified currency, and generating an order in the specified currency based on an order received in the other currency, and the current exchange rate, a method is obtained, by which more orders, as compared to prior art methods, can be handled. As a result a more liquid market with more conclusions of trades is obtained. The inventive algorithm is particularly useful when the instrument involved has a low turnover rate.
With reference now to
a illustrates a typical situation during a trading day: a number of bids and offers exist. Each bid price and each ask price has an order depth given by the number and sizes of orders at that price.
At this point a bid order is received from a trader: “buy 600 of instrument A for a maximum bid price of 119 US dollars”. The inventive method of
Assume now that an updated exchange rate of 1.09 USD/EUR is received. The bid order is now adjusted to “buy 600 of instrument A for a maximum bid price of 109 euros” to reflect the received updated exchange rate. The result of this adjustment is shown in
Assuming now that an updated exchange rate of 1.07 USD/EUR is received, the bid order is adjusted to “buy 600 of instrument A for a maximum bid price of 111 euros” to reflect the received updated exchange rate. This order is met by one or several offers as shown at the ask price of EUR111 in
With reference next to
This embodiment is similar to the
The algorithm of
Next, in a step 23, a combination order comprising one order in the instrument in the specified currency and one order in the specified currency in the different currency are formed based on the received order in the instrument in the different currency.
Three different possible actions may then be performed depending on the circumstances. The order may, in a step 24, be cancelled, e.g. in response to a request made by the trader. Alternatively, the combination order is, in a step 25, met by other orders on the markets, whereupon a trade in the instrument and in the specified currency are performed simultaneously. After the order has been cancelled or been met the inventive algorithm is, in a step 26, ended.
A third possibility, provided that the combination order is not immediately met by other orders, is to, in a step 27, form a derived order in the instrument or in the specified currency, wherein the derived order is formed so that provided that the derived order will be met by another order, the other order of the combination order will automatically be met by still another order, and trades in the instrument and the specified currency can be performed simultaneously. The derived order, which may also be referred to as a bait, is entered into the order book for that instrument or currency, after which the algorithm is returned back to a position immediately after step 23.
When the market changes, the derived order may become obsolete, i.e. it does not fulfill the above-mentioned requirement. In such instance, the derived order has to be adjusted according to the subsisting market at each instant, i.e. the obsolete derived order is removed from the order book and the adjusted derived order is entered into the order book. This is an integral portion of the step 27 as illustrated. The step 27 thus forms a loop for forming/adjusting a derived order, which at each instant is up to date with the market.
It shall be appreciated that a derived order may be formed not only in the instrument or in the specified currency, but in both. This increases the possibility of having the combination order met.
It shall further be appreciated that this embodiment has to take the sizes of the orders in the specified currency into account, and hence this solution calls for a more complex algorithm. For instance, when forming a derived order in the instrument or the specified currency the best price provided in the other one of the instrument or the specified currency may not have sufficient order depth and in such instance the second best price, and optionally the third best price, have to be considered.
With reference next to
a illustrates a typical situation during a trading day: a number of bids and offers exist in each order book. Each bid price and each ask price has an order depth given by the number and sizes of orders at that price. The order depth for the instrument A is given in the volume of that instrument and the order depth for the currency euro are given in euros.
At this point a bid order is received from a trader: “buy 600 of instrument A for a maximum bid price of 119 US dollars”. The inventive method of
It is checked whether the best ask price for 600 of instrument A, i.e. EUR111, and the best ask price for 600×EUR111=EUR66600, i.e. 1.076 USD/EUR, match the combination order. In this case it does not match the combination order and as a consequence two derived orders are formed to increase the probability of having the combination order met in the near future.
A derived order for buying 600 of instrument A is formed from the best ask price for euros in a sufficient amount, i.e. 1.076 USD/EUR. USD119 divided by 1.076 USD/EUR gives EUR110.5. Thus a derived order is formed as an order for buying 600 of instrument A at EUR110.5. Provided that the derived order is met, the complete combination order is met. If the best ask price of 1.076 USD/EUR is increased, the bid price of the derived order has to be decreased correspondingly.
Similarly, a derived order for buying 66600 euros at a price of 1.072 USD/EUR (USD119/EUR111) is formed from the best ask price for instrument A in a sufficient amount, i.e. EUR111. Provided that the derived order is met, the complete combination order is met. As soon as one of the derived orders is met, the corresponding trades are performed and the other derived order is immediately cancelled.
In
Finally,
Such automated trading system may comprise a module for receiving orders in an instrument in a specified currency via an input line 42a; a module for performing a trade in that instrument when, for a certain volume of the instrument, a bid price matches an ask price; a module for receiving an order in the instrument in another currency from a trader via line 42a; a module for repeatedly receiving an exchange rate between the other currency and the specified currency via an input line 42b; a module for calculating a price of the order in the specified currency based on the received order and the last received exchange rate; and a module for transferring the order in the instrument in the specified currency to the module for receiving orders in an instrument in a specified currency.
| Number | Date | Country | |
|---|---|---|---|
| Parent | 10444091 | May 2003 | US |
| Child | 13190929 | US |
