Sistema e método de troca de par

O segredo para encontrar lucro na negociação de pares.
"Quants" é o nome de Wall Street para pesquisadores de mercado que usam análise quantitativa para desenvolver estratégias comerciais lucrativas. Em suma, um quant combina com os índices de preços e as relações matemáticas entre empresas ou veículos comerciais, a fim de divisar as oportunidades comerciais rentáveis. Durante a década de 1980, um grupo de quants trabalhando para Morgan Stanley atingiu o ouro com uma estratégia chamada comércio de pares. Investidores institucionais e mesas de negociação proprietárias em grandes bancos de investimento estão usando a técnica desde então, e muitos fizeram um lucro arrumado com a estratégia.
Raramente é no melhor interesse dos banqueiros de investimento e dos gestores de fundos mútuos compartilhar estratégias de negociação rentáveis ​​com o público, de modo que o comércio de pares continuou sendo um segredo dos profissionais (e alguns indivíduos hábeis) até o advento da internet. O comércio on-line abriu a tampa em informações financeiras em tempo real e deu acesso aos novatos a todos os tipos de estratégias de investimento. Não demorou muito para o comércio de pares atrair investidores individuais e comerciantes de pequeno porte que buscam proteger sua exposição de risco aos movimentos do mercado mais amplo.
O objetivo é combinar dois veículos comerciais que estão altamente correlacionados, negociando um longo e o outro curto quando a relação de preço do par diverge o número "x" de desvios padrão - "x" é otimizado usando dados históricos. Se o par reverte para sua tendência média, um lucro é feito em uma ou ambas as posições.
O primeiro passo na concepção de um comércio de pares é encontrar dois estoques altamente correlacionados. Normalmente isso significa que as empresas estão na mesma indústria ou subsector, mas nem sempre. Por exemplo, os estoques de rastreamento de índices, como o QQQQ (Nasdaq 100) ou o SPY (S & amp; P 500), podem oferecer excelentes oportunidades de negociação de pares. Dois índices que, em geral, comercializam juntos são S & amp; P 500 e Dow Jones Utilities Average. Este gráfico de preços simples dos dois índices demonstra sua correlação:
Para o nosso exemplo, analisaremos duas empresas altamente correlacionadas: GM e Ford. Como ambos são fabricantes de automóveis americanos, seus estoques tendem a se mover juntos.
Abaixo está um gráfico semanal da relação de preço entre Ford e GM (calculado dividindo o preço das ações da Ford pelo preço das ações da GM). Essa relação de preço às vezes é chamada de "desempenho relativo" (não deve ser confundida com o índice de força relativa, algo completamente diferente). A linha branca central representa a relação preço médio nos últimos dois anos. As linhas amarelas e vermelhas representam um e dois desvios padrão da razão média, respectivamente.
No gráfico abaixo, o potencial de lucro pode ser identificado quando o índice de preços atinge seu primeiro ou segundo desvio. Quando ocorrem essas divergências lucrativas, é hora de assumir uma posição longa no desempenho inferior e uma posição curta no overachiever. A receita da venda curta pode ajudar a cobrir o custo da posição longa, tornando o comércio de pares barato para colocar. O tamanho da posição do par deve ser combinado com o valor do dólar em vez do número de ações; desta forma, um movimento de 5% em um é igual a um movimento de 5% na outra. Tal como acontece com todos os investimentos, existe o risco de que os negócios possam se mover para o vermelho, por isso é importante determinar os pontos de parada-perda otimizados antes de implementar o comércio de pares.
Um Exemplo Usando Contratos Futuros.
Um comércio de pares no mercado de futuros pode envolver uma arbitragem entre o contrato de futuros e a posição de caixa de um determinado índice. Quando o contrato de futuros fica à frente da posição de caixa, um comerciante pode tentar lucrar com o curto prazo do futuro e passar muito tempo no estoque de rastreamento do índice, esperando que eles se juntem em algum momento. Muitas vezes, os movimentos entre um índice ou commodity e seu contrato de futuros são tão apertados que os lucros são deixados apenas para os comerciantes mais rápidos - muitas vezes usando computadores para executar automaticamente enormes posições em um piscar de olhos.
Um Exemplo de Opções de Uso.
Evidência de Rentabilidade.
Os interessados ​​na técnica de negociação de pares podem encontrar mais informações e instruções no livro Pairs Trading da Ganapathy Vidyamurthy: métodos quantitativos e análise, que você pode encontrar aqui.

Estratégias de negociação sistemáticas pdf.
Investir no forex.
Sistema e método de troca de par.
Pairs trading é uma estratégia de negociação dinâmica que qualquer comerciante da ETF pode adicionar ao seu playbook. Alguns traders usam a estratégia durante condições voláteis de mercado na tentativa de controlar o risco, enquanto o método o utiliza porque favorecem um investimento em detrimento de outro, mas percebem que podem estar errados e querem cobrir sua aposta. Com uma compreensão básica da negociação de pares, os investidores podem controlar o risco enquanto ainda obtêm lucro. Com tantos ativos de classe, método e índices disponíveis para o comércio, os ETFs oferecem excelentes candidatos de troca de pares, mas apenas se você sabe o que fazer. O comércio de pares normalmente envolve a negociação de dois ativos altamente correlacionados. Os comerciantes de pares procuram desvios neste relacionamento típico e então tentam explorá-los. O apelo é que parece uma estratégia de baixo risco. Flutuações de preços são compensadas pelo método, pois há uma posição longa e uma curta. Se os ativos desconectados revertem para uma negociação elevada, os comerciantes de pares obtêm lucro. Infelizmente, os mercados nem sempre são previsíveis. Ativos correlacionados nos últimos anos podem não ser correlacionados amanhã. As correlações são tendências para que os ativos se movam juntos, mas em qualquer momento eles podem divergir. Se a divergência dura demais, ou os ativos continuam a avançar cada vez mais, os comerciantes podem estar expostos a grandes perdas. Como escolher o ETF certo todas as vezes]. ETFs fornecem inúmeros candidatos comerciais. Com cargas de setores de estoque, bem como títulos, petróleo, ouro, prata, treasuries, mercados internacionais e índices domésticos de par global para escolher, os comerciantes de ETF podem encontrar inúmeras oportunidades durante o dia de negociação ou negociação de swing. Esses índices são altamente correlacionados e ambos são negociáveis ​​via ETFs: na Figura 1, observe a alta correlação entre os dois ETFs. Quando os dois se separam, eles geralmente se reconectam, embora isso possa e dias ou meses. Tais divergências oferecem uma oportunidade para encurtar o fundo mais forte e ir muito longe no método mais fraco, ao mesmo tempo em que confia na correlação para se reafirmar, resultando em um lucro [ver 5 Padrões Gráficos Mais Importantes para Traders ETF]. Embora a estratégia pareça simples, é importante anotar quaisquer outras tendências entre dois potenciais ETFs. Por exemplo, o OIL superou o USO apenas um pouco durante o período exibido, e isso precisa ser contabilizado. Se um recurso for continuamente mais forte do que o outro, então continuar com o maior tendência e curtir um com tendências mais fracas é geralmente a melhor abordagem comercial. Certos setores também compartilham relações entre si, embora nem sempre sejam correlações. Por exemplo, durante tempos conturbados, o SPD Utilities Select Sector Fund XLU A geralmente supera outros setores mais especulativos, à medida que os investidores transferem seus ativos para ações de empresas de serviços públicos mais estáveis. Portanto, como o pânico tomou conta do mercado no sistema em detrimento das preocupações financeiras, um trader de pares poderia ter encurtado o Financial Select Sector SPDR XLF A e ido muito em XLU [ver 17 ETFs For And Traders]. Em uma escala muito menor, o mesmo cenário ocorreu na primavera de, como mostrado na Figura 3. O XLF quebrou sua tendência de alta e começou a diminuir. O comerciante de pares poderia ter visto isso como uma oportunidade para curto XLF e comprar XLU; o pressuposto de que XLU seria mais forte do que o declínio XLF. Realizada por pouco mais de um mês, um lucro teria sido obtido em ambas as posições. Os comerciantes devem sair de uma posição assim que parecer que a tendência pode estar mudando. Em junho, a XLF subiu o preço mais alto em maio, indicando alguma força. É recomendável usar uma perda de parada; Os níveis apropriados são marcados no gráfico. Durante diferentes fases do ciclo do mercado, alguns setores terão melhor desempenho do que outros. Os investidores devem monitorar quais setores são gostosos e procurar comprá-los, enquanto curtem aqueles que são fracos, enquanto observam as reversões. Um failur para monitorar posições, ou colocar uma perda de parada no lugar, pode resultar em grandes perdas se as tendências mudarem. Os mercados de ações de diferentes países também são negociáveis ​​via ETF, fornecendo muitas oportunidades para negociação de pares. Para ETFs que são altamente correlacionados, muitas vezes a melhor estratégia é ir muito para o mais fraco e curto o mais forte quando as tendências de preço divergem. Isto baseia-se no pressuposto de que, em breve, se recuam a sincronização de negociação uns com os outros. A Figura 4 mostra que em grande parte dos ETFs negociados em sincronia, mas às vezes separados. Curtar o mais forte e comprar o fundo mais fraco nesses momentos sempre resultou em um lucro, eventualmente, à medida que os dois ETF convergiram novamente. Outra opção é a negociação com base na força e fraqueza. Por exemplo, no início do México, a EWW A era um mercado quente, enquanto a Espanha EWP Pair não era. Passar por muito tempo ao México e à falta de Espanha teria sido um comércio de pares muito lucrativo, resultando em lucros significativos. Existem muitos índices que podem ser usados ​​para pares também. Os índices acompanham os preços das commodities, títulos, capitais pequenos e grandes capitais, bem como mercados globais. Ao assistir índices, um comerciante pode determinar quais classes de ativos têm dinheiro que flui para dentro e para fora deles [veja 3 Dicas de negociação da ETF que você está faltando]. Os investidores viram começar com estoques de grandes capitais, representados pelo SPDR Dow Jones Industrial Average DIA A - movendo-se mais alto em uma forte tendência de alta. O Barclays 20 Year Treasury Bond Fund TLT B, por outro lado, foi e menor. De janeiro a março, o comércio produziu lucros. No entanto, em abril, as tendências começaram a se reverter. O comércio de pares é encerrado como TLT apenas um ETF precisa mostrar sinais de uma reversão cria uma maior negociação e depois se move ainda mais alto. O comércio de pares é então revertido: Mais uma vez, as paradas são usadas ou as tendências são monitoradas de perto, já que é possível perder em ambas as posições se as tendências mudarem repentinamente [ver 5 Lições Importantes do ETF em Imagens]. Empregar uma estratégia de pares ETF pode ser útil quando há uma desconexão entre ativos que geralmente estão altamente correlacionados. Setor, país e par de ETFs também oferecem oportunidades para o negociador de pares, geralmente envolvendo um longo ETF e curto em um fraco. Também seria prudente negociar um limite de perdas em cada operação e perceber que os mercados são dinâmicos; relacionamentos que existiram ontem podem não existir necessariamente amanhã. Receba as últimas notícias, análises e comentários do ETF da autoridade independente sobre os ETFs. Assine o ETFdb. Baixa Volatilidade Os ETFs investem em títulos com baixas características de volatilidade. Esses fundos tendem a ter preços de ações relativamente estáveis ​​e negociam com rendimentos médios. Os investidores que suspeitam que o mercado de ações pode estar prestes a declinar podem tomar medidas para reduzir o agradecimento pela escolha de seu corretor. Ajude-nos a personalizar a sua experiência. Sua experiência personalizada está quase pronta. Junte-se a outros investidores individuais que recebem atualizações e pesquisas de mercado personalizadas GRATUITAS. Junte-se a outros Investidores Institucionais que recebem atualizações e pesquisas gratuitas de mercado personalizadas. Junte-se a outros consultores financeiros que recebem atualizações e pesquisas de mercado personalizadas GRATUITAS. Verifique seu e-mail e confirme sua inscrição para concluir sua experiência personalizada. Obrigado pela sua apresentação, esperamos que você aproveite sua experiência. Preços Grátis Registe-se Login. Estratégias de negociação ETF Como usar uma estratégia de negociação de pares com ETFs. Cory Mitchell 24 de junho, os comerciantes de pares aproveitam isso comprando um índice forte e baixando um índice fraco. Não há posições no momento da redação. Receba atualizações por e-mail Inscreva-se para receber atualizações GRATUITAS, insights e muito mais, diretamente na sua caixa de entrada. News Buy on the Prospecto Dip: 19 de junho Edição Sam Bourgi 19 de junho, Abaixo está uma olhada em ETFs que atualmente oferecem oportunidades de compra atraentes. Notícias sobre as Perspectivas de Pop: Aqui está um olhar no Sistema que atualmente oferece atrativas oportunidades de venda curtas. 18 de junho Edição Sam Bourgi 18 de junho, aqui está um olhar sobre ETFs que atualmente oferecem oportunidades de renda atraentes. Ferramentas ETF Screener ETF Analyzer Fundo Mútuo para ETF Conversor Head-to-Head ETF Comparison Ferramenta ETF Country Exposure ETF Stock Exposure Ferramenta ETFdb. Explore ETFs ETF Picks of The ET ETF Relatórios de categoria Artigos Premium Newsletter mensal Lista alfabética de ETFs Melhores ETFs Procurar ETFs pela ETFdb. Política legal de privacidade Termos de uso Siga ETFdb. Análise de ideias de investimento ETF acionáveis ​​de todas as novas ETF ETF News e Comparações Head-to-Head. Nós respeitamos sua privacidade. O seu portfólio está protegido para o que os mercados vão trazer neste outono? A criação de um portfólio adequadamente diversificado pode ser uma proposta de dupla, especialmente quando o ETF Investing Low Volatility ETF List Low Volatility e investir em títulos com baixas características de volatilidade. ETF Investing 10 ETFs para Redução de Risco em seu portfólio Bob Ciura.
Pair trade usando o método de desacoplamento beta.
4 pensamentos sobre "Par sistema de negociação e método & rdquo;
Isso, portanto, elimina a noção de que as mulheres ganham menos do que os homens simplesmente porque colocam menos horas que os homens.
O conjunto certo de ferramentas de monitoramento e solução de problemas, juntamente com os conhecimentos de Engenharia de RF, o levará além dos sintomas para a origem do problema.
Aqueles que se opõem ao aumento do salário mínimo, acreditam que ele não deve ser aumentado e deve permanecer o mesmo, porque fará com que as empresas fechem porque não estão ganhando dinheiro suficiente para sobreviver na economia. Um aumento do salário mínimo teria fazer com que os funcionários trabalhem mais para aumentar as vendas do negócio.
Eu me mudei um tempo e voltei para casa alguns anos atrás e comecei a navegar de novo.

REFERÊNCIA CRUZADA À APLICAÇÃO RELATIVA.
Este pedido reivindica o benefício da data de depósito do pedido provisório US. 60 / 334,163, intitulada “Método e Sistema de Negociação de Pares de Valores Mobiliários”, que foi apresentada em 29 de novembro de 2001, cujos conteúdos são incorporados por referência neste documento.
FUNDO.
A presente invenção refere-se a um sistema e método para negociar valores mobiliários e, em particular, a um sistema e método de negociação de títulos em pares.
Uma estratégia reconhecida para negociar títulos é conhecida como negociação em pares. Pair-trading é uma estratégia de investimento não direcional em que o investidor identifica dois títulos com características semelhantes e os valores mobiliários estão atualmente sendo negociados em uma relação de preço que está fora de sua faixa histórica de negociação. O investidor explora a relação de preço entre os valores mobiliários, comprando a garantia subvalorizada enquanto vende de curto a segurança sobrevalorizada. Como a negociação de par é uma estratégia neutra em termos de mercado, é uma estratégia particularmente desejável para investir em mercados voláteis.
Um contexto em que o comércio de pares é útil é o lugar onde um investidor deseja tirar proveito de uma oportunidade de arbitragem resultante de uma fusão entre duas empresas. Por exemplo, a Empresa A anunciou um acordo definitivo para adquirir a Companhia T, caso em que os acionistas da Companhia T receberão 0,5 ações da Companhia A por cada ação das ações da Companhia T que possuem. O investidor deseja capturar o “spread” entre a contrapartida oferecida (0,5 ação de A) e o preço da ação T. Para fazer isso, o investidor compra ações em ações T e vende ações de uma ação.
Por exemplo, se a ação T estiver sendo negociada a US $ 28 por ação e a ação A estiver sendo negociada a US $ 60 por ação, o investidor pode executar uma transação de 200.000 spreads comprando 200.000 ações da T e vendendo 100.000 ações da A. Após a fusão, o investidor cobrirá a posição vendida na ação A com as 100.000 ações de uma ação que os investidores recebem em troca das 200.000 ações que o investidor detinha das ações T. Assim, ao executar o par de negócios, o investidor trava em um lucro de US $ 400.000 (supondo que a fusão passe por). O processo de execução de um comércio de pares inclui, portanto, a execução de transações individuais direcionadas a cada perna da dupla solicitação comercial. Um exemplo de um sistema para executar trocas para o preenchimento de um pedido de troca par é o sistema Quantex da ITG [(itgincproducts / quantex / quantex. html)] de 380 Madison Avenue New York, N. Y. 10017.
Um desafio na implementação de um par de negócios é encontrar uma contraparte para uma determinada posição que um investidor deseje estabelecer enquanto minimiza o “risco de perna”. Normalmente, um grande comércio de pares é realizado “fora do mercado” como uma transação privada negociada por uma instituição financeira. que presta serviços a grandes clientes. Por exemplo, se um investidor deseja executar um par de apostas comerciais que uma fusão proposta entre duas empresas passará, o investidor se aproximaria de uma instituição financeira em busca de um investidor disposto a apostar contra a fusão. A instituição financeira atua como intermediária entre os dois investidores em que os investidores estabelecem posições iguais e opostas no estoque dos parceiros de fusão propostos, completando assim o comércio de dupla. Assim, combinando duas solicitações de negociação de pares para que as transações associadas a cada uma das duas pernas de negociação sejam executadas simultaneamente, nenhum dos investidores está exposto ao risco de perna que resultaria do período de tempo entre a execução da primeira perna e a segunda o comércio par.
Existem numerosos inconvenientes associados à prática predominante de negociação de pares. Em primeiro lugar, a negociação de par é tipicamente limitada a clientes de grandes instituições financeiras que têm a capacidade de identificar contrapartes adequadas para um comércio particular de pares. Esse é especialmente o caso quando o comércio de pares envolve uma grande quantidade de ações ou ações ilíquidas em que a única maneira de executar o negócio e minimizar o risco de perna é por meio de uma transação “fora do mercado” negociada por uma instituição financeira. Além disso, uma vez que um par-trade normalmente é negociado pelas partes com uma instituição financeira como intermediário, o processo geralmente é lento e ineficiente. Além disso, a negociação de par sob a prática atual é geralmente mais adequada para grandes clientes que buscam estabelecer grandes posições, proporcionando assim às instituições financeiras o incentivo econômico para executar a transação. Os clientes mais pequenos, no entanto, devem confiar nos mercados para a execução de negócios de pares, o que não é adequado para estoques ilíquidos e também resulta em maior risco de perna.
Consequentemente, é desejável fornecer um sistema e método para negociar títulos em pares.
SUMARIO DA INVENÇÃO.
O presente invento destina-se a superar as desvantagens das práticas de comércio de pares da técnica anterior. De acordo com a presente invenção, é proporcionado um método para satisfazer um pedido de comércio em par e inclui os passos de receber uma pluralidade de pedidos de troca de pares; executar uma transacção para uma primeira porção de uma da pluralidade de pedidos de negociação de pares e igualar uma segunda parte da pluralidade de pedidos de troca de pares contra outra da pluralidade de pedidos de troca de pares.
Numa concretização exemplar, o método inclui o passo de executar uma transação para uma primeira porção de uma das múltiplas solicitações de comércio de pares em um mercado externo.
Noutra forma de realização exemplar, o método inclui o passo de executar uma transacção para uma primeira porção de uma das múltiplas solicitações comerciais de pares contra o inventário de pedidos.
Ainda noutra concretização exemplar, o pedido de comércio em par inclui um primeiro título com um preço de oferta e um preço de venda e um segundo título com um preço de oferta e um preço de venda, e o método inclui os passos para determinar se o preço de oferta do primeiro a segurança e o preço de oferta do segundo título atendem a um limite de spread; determinar um valor do segundo título que pode ser vendido com base em um tamanho de lance associado ao segundo título; calcular uma quantia equivalente do primeiro título que pode ser comprado com base na quantia do segundo título que pode ser vendido; ajustar o montante equivalente do primeiro título com base em critérios de ajuste; calcular um preço de compra para o montante equivalente ajustado do primeiro título com base no limite de spread; executando uma ordem inicial para comprar a quantia equivalente ajustada da primeira garantia ao preço de compra e executar uma ordem de cobertura para vender a quantia da segunda garantia.
Ainda noutra forma de realização exemplar, o método inclui o passo de executar uma ordem de cobrança para vender o valor do segundo título ao preço da oferta do segundo título.
Numa forma de realiza�o exemplificativa, o m�odo inclui os passos de determinar se o pre�o de solicita�o do primeiro valor mobil�tico e o preco de solicita�o do segundo valor de seguran� e / ou do pre�o de oferta do primeiro valor mobil�rio e do pre�o de oferta do segundo seguran� cumprem um limite de dispers� ; determinar um montante da primeira segurança que pode ser comprada com base em um tamanho de oferta associado à primeira segurança; calculando um montante equivalente da segunda garantia que pode ser vendida com base no valor da segunda garantia que pode ser comprada; ajustar o valor equivalente do segundo título com base em critérios de ajuste; calcular um preço de venda para o montante equivalente ajustado do segundo título com base no limite de spread; executando uma ordem inicial para vender a quantia equivalente ajustada da segunda garantia ao preço de venda e executando uma ordem de cobertura para comprar a quantia da primeira garantia.
Em outra forma de realização exemplar, o método inclui o passo de executar uma ordem de cobrança para comprar o montante da primeira garantia ao preço de pedido da primeira garantia.
Ainda noutra concretização exemplar, os critérios de ajuste incluem uma quantidade mínima e uma quantidade máxima.
Ainda noutra forma de realização exemplificativa, o método inclui o passo de arredondar a ordem inicial para um tamanho de lote redondo.
Numa concretização exemplar, o método inclui o passo de executar uma primeira porção de uma das múltiplas solicitações de comércio de pares em uma pluralidade de tranches.
Noutra forma de realizao exemplificativa, a da pluralidade de pedidos de troca de pares e a outra da pluralidade de pedidos de troca de pares incluem uma primeira garantia e uma segunda garantia, a da pluralidade de pedidos de troca de pares tem um primeiro limite de divulgao e a outra da referida pluralidade de solicitações comerciais tem um segundo limite de propagação e em que o método inclui as etapas de determinar que um intervalo do primeiro limite de propagação e o segundo limite de propagação se sobrepõem com um spread de mercado; estabelecendo um nível de propagação; o cálculo dos preços para o primeiro título e o segundo título que estão dentro do spread de mercado e com base no nível de spread e combinando a segunda porção daquele da pluralidade de solicitações de negociação de par contra outro da pluralidade de solicitações de comércio de pares com base no cálculo calculado preços.
Ainda noutra forma de realização exemplificativa, o método inclui os passos de calcular uma média entre o primeiro limite de dispersão e o segundo limite de dispersão e definir o nível de dispersão como a média se a média estiver dentro do spread de mercado.
Ainda noutra forma de realização exemplificativa, o método inclui o passo de identificar um montante de spread que está mais próximo da média e dentro do spread de mercado e definindo o nível de spread como a quantidade de spread se a média não estiver dentro do spread de mercado.
Numa forma de realização exemplificativa, o da pluralidade de pedidos de comércio de pares e o outro da pluralidade de pedidos de comércio de pares incluem um primeiro título e um segundo título, o da pluralidade de pedidos de negociação por par tem um primeiro limite de spread, um rácio e um rácio de venda, o outro da pluralidade de pedidos comerciais tem um segundo limite de spread, um rácio de compra e um rácio de venda e o método inclui os passos para determinar que o rácio de compra e o rácio de venda associados ao da pluralidade Os pedidos de comércio não equivalem ao rácio de compra e ao rácio de venda do outro da pluralidade de pedidos de comércio e que existe uma sobreposição entre o intervalo do primeiro limite de spread e o segundo limite de spread e um spread de mercado; determinar que existem preços de mercado dentro da sobreposição; determinar um montante de desfasamento no segundo título com base numa diferença entre o rácio de compra e o rácio de venda associado ao da pluralidade de pedidos comerciais e o rácio de compra e o rácio de venda do outro da pluralidade de pedidos comerciais; calcular um valor cruzado para a primeira garantia e a segunda garantia; selecionando um preço de cruzamento para a primeira segurança e a segunda segurança que está dentro da sobreposição; determinar que o valor do desajuste está disponível no preço de cruzamento para o segundo título; casando a segunda parte da pluralidade de solicitações de comércio de pares com outra da pluralidade de solicitações de comércio de pares com base nos preços calculados e executando uma transação para o valor de discordância da segunda garantia no preço de cruzamento para a segunda garantia.
Noutra concretização exemplar, o método inclui o passo de determinar que o montante de incompatibilidade está disponível em um mercado externo ao preço de cruzamento para a segunda segurança.
Ainda noutra forma de realização exemplificativa, o método é realizado por uma instituição financeira com inventário de ordens e inclui o passo de determinar que o montante de discordância está disponível no inventário de ordens ao preço de cruzamento para o segundo título.
Ainda numa outra forma de realização exemplificativa, o da pluralidade de pedidos de comércio de pares e o outro da pluralidade de pedidos de comércio de pares indicam um certo número de spreads e o método inclui o passo de fazer coincidir uma segunda porção do da pluralidade de pares. pedidos de negociação contra outro da pluralidade de pedidos de troca de pares, se o número de spreads for maior do que um número mínimo de spreads.
Numa forma de realizao exemplificativa, o modo inclui o passo de receber uma prefercia pelo preenchimento de pelo menos alguns da pluralidade de pedidos de troca atrav do passo de executar uma transaco para uma primeira parte de uma da pluralidade de pedidos de troca de pares, descrita acima.
Noutra forma de realizao exemplificativa, o modo inclui o passo de receber uma prefercia pelo preenchimento de pelo menos alguns da pluralidade de pedidos de troca atrav do passo de coincidir com uma segunda poro da pluralidade de pedidos de troca de pares contra outra da pluralidade de pares pedidos comerciais, descritos acima.
De acordo com a presente invenção, é fornecido um método para satisfazer um pedido de comércio em par e inclui os passos de recepção de uma pluralidade de pedidos de comércio de pares e correspondência de pelo menos uma parte de uma pluralidade de pedidos de comércio de pares contra outro da pluralidade de comércio de pares. solicitações de.
De acordo com a presente invenção, é fornecido um sistema para satisfazer um pedido de comércio em par, o sistema recebendo uma pluralidade de pedidos de troca de pares e inclui um par de mecanismos de negociação para executar uma transação para uma primeira parte de uma pluralidade de solicitações de troca de pares. O sistema também inclui uma rede de cruzamento de pares para combinar uma segunda porção da referida uma das múltiplas solicitações de comércio de pares contra outra da pluralidade de solicitações de comércio de pares.
Em uma forma de realização exemplar, o sistema inclui um link para mercados externos e em que o mecanismo de negociação do par executa a transação para a primeira parcela de uma das múltiplas solicitações comerciais de pares nos mercados externos.
Noutra forma de realizao exemplificativa, o sistema inclui uma instituio financeira com um inventio de ordens e em que o mecanismo de negociao de pares executa a transaco para a primeira parte de uma da pluralidade de pedidos de troca de pares contra o inventio de ordens.
Ainda noutra forma de realização exemplificativa, o pedido de comércio em par inclui um primeiro título com um preço de oferta e um preço de venda e um segundo título com um preço de oferta e um preço de venda e em que o motor de negociação de pares determina se o preço de oferta do primeiro preço de garantia e o preço de oferta do segundo título atende a um limite de spread; determina um montante da segunda garantia que pode ser vendida com base em um tamanho de lance associado à segunda segurança; calcula uma quantia equivalente da primeira garantia que pode ser comprada com base na quantia da segunda garantia que pode ser vendida; ajusta o montante equivalente do primeiro título com base em critérios de ajuste; calcula um preço de compra para o montante equivalente ajustado do primeiro título com base no limite de spread; executa uma ordem inicial para comprar o valor equivalente ajustado da primeira garantia ao preço de compra e executa uma ordem de cobertura para vender o valor da segunda garantia.
Ainda noutra concretização exemplar, o mecanismo de troca de pares executa uma ordem de cobrança para vender o valor da segunda garantia ao preço de oferta da segunda garantia.
Numa concretização exemplar, o motor de negociação em dois determina se o preço de venda da primeira garantia e o preço de venda da segunda garantia correspondem a um limite de spread; determina um montante da primeira segurança que pode ser comprada com base em um tamanho de oferta associado à primeira segurança; calcula uma quantia equivalente da segunda garantia que pode ser vendida com base na quantia da segunda garantia que pode ser comprada; ajusta a referida quantia equivalente da segunda garantia com base nos critérios de ajuste; calcula um preço de venda para o montante equivalente ajustado do segundo título com base no limite de spread; executa uma ordem inicial para vender a quantia equivalente ajustada da segunda garantia ao preço de venda; e executa uma ordem de cobertura para comprar o valor da primeira garantia.
Em outra forma de realização exemplar, o mecanismo de troca de pares executa uma ordem de cobrança para comprar o valor da primeira garantia ao preço da primeira garantia.
Em mais uma outra forma de realização exemplar, o motor de troca de pares arrasa a ordem inicial para um tamanho de lote redondo.
Ainda noutra concretização exemplar, o motor de troca de pares executa uma primeira porção de uma das múltiplas solicitações de comércio de pares em uma pluralidade de tranches.
Numa forma de realização exemplificativa, o da pluralidade de pedidos de comércio de pares e o outro da pluralidade de pedidos de comércio de pares incluem um primeiro título e um segundo título, o da pluralidade de pedidos de comércio por pares tem um primeiro limite de spread e o outro da pluralidade de pedidos comerciais tem um segundo limite de propagação e em que a rede de cruzamento de pares determina que um intervalo do primeiro limite de propagação e o segundo limite de propagação se sobrepõem com um spread de mercado; define um nível de propagação; calcula os preços da primeira segurança e da segunda segurança que estão dentro do mercado espalhados e com base no nível de spread; e corresponde à segunda porção da referida uma das múltiplas solicitações de comércio de pares em relação a outra da pluralidade de solicitações comerciais de pares, com base nos preços calculados.
Em outra forma de realização exemplar, a rede de cruzamento de pares calcula uma média entre o primeiro limite de propagação e o segundo limite de propagação e define o nível de propagação como a média se a média estiver dentro do mercado espalhado.
Ainda noutra concretização exemplificativa, a rede de cruzamento de pares identifica um montante de spread que está mais próximo da média e dentro do spread de mercado e define o nível de spread como a quantidade de spread se a média não estiver dentro do spread de mercado.
Ainda numa outra forma de realização exemplificativa, a da referida pluralidade de pedidos de comércio de pares e a outra da pluralidade de pedidos de comércio de pares incluem uma primeira garantia e uma segunda garantia, a da pluralidade de pedidos de troca de pares tem um primeiro limite de spread, um rácio de compra e um rácio de venda, o outro da pluralidade de pedidos comerciais tem um segundo limite de spread, um rácio de compra e um rácio de venda e em que a rede de cruzamento de par determina que o rácio de compra e o rácio de venda associados ao a pluralidade de pedidos comerciais não é igual ao rácio de compra e ao rácio de venda do outro da pluralidade de pedidos comerciais e que existe uma sobreposição entre o intervalo do primeiro limite de spread e o segundo limite de spread e um spread de mercado; determina que existem preços de mercado que estão dentro da sobreposição; determina um montante de desfasamento no segundo título com base numa diferença entre o rácio de compra e o rácio de venda associado ao da pluralidade de pedidos comerciais e o rácio de compra e o rácio de venda do outro da pluralidade de pedidos comerciais; calcula um valor cruzado para a primeira segurança e a segunda segurança; seleciona um preço de cruzamento para a primeira segurança e a segunda segurança que está dentro da sobreposição mencionada; determina que o valor de incompatibilidade está disponível no preço de cruzamento para o segundo título; corresponde à segunda porção da uma das múltiplas solicitações de troca de pares em relação a outra da pluralidade de solicitações comerciais de pares, com base nos preços calculados; e executa uma transação para o montante de incompatibilidade do segundo título ao preço de cruzamento para o segundo título.
Em uma forma de realização exemplar, a rede de cruzamento de pares determina que o montante de incompatibilidade está disponível em um mercado externo ao preço de cruzamento para a segunda segurança.
Em outra forma de realização exemplar, a rede de cruzamento de pares determina que o montante de falta de correspondência está disponível no inventário de pedidos ao preço de cruzamento para a segunda segurança.
Ainda noutra forma de realização exemplificativa, a da referida pluralidade de pedidos de comércio de pares e a outra da pluralidade de pedidos de comércio de pares indicam um certo número de spreads e em que a rede de cruzamento de pares corresponde a uma segunda parte da pluralidade de pedidos de troca de pares. contra outra da pluralidade de pedidos de troca de pares se o número de spreads for maior que um número mínimo de spreads.
Ainda numa outra forma de realização exemplar, a pluralidade de pedidos de comércio de pares inclui pelo menos alguns pedidos de negociação de pares indicando uma preferência pela execução através da referida rede de cruzamento de pares, e o sistema inclui ainda um gestor de carteira em comunicações com a rede de cruzamento de pares, o gestor de carteira receber a pluralidade de pedidos de troca de pares e encaminhar pelo menos alguns pedidos de troca de pares para a rede de cruzamento de pares de acordo com a preferência.
Numa forma de realização exemplificativa, o sistema inclui um par de mecanismos de negociação para executar pelo menos parte da pluralidade de pedidos de comércio de pares, inclui ainda um gestor de carteira em comunicações com o par de mecanismos de negociação e em que a pluralidade de pedidos de troca de pares inclui pelo menos algum par pedidos de troca indicando uma preferência pela execução através do par motor de negociação, o gestor de carteira recebendo a pluralidade de pedidos de comércio de pares e encaminhando pelo menos alguns da pluralidade de pedidos de negociação para o par de mecanismo de negociação de acordo com a preferência.
De acordo com a presente invenção, é proporcionado um sistema para satisfazer um pedido de comércio em par, em que o sistema recebe uma pluralidade de pedidos de comércio de pares e inclui uma rede de cruzamento de pares para corresponder pelo menos um da pluralidade de pedidos de comércio de pares contra outro da pluralidade de par solicitações comerciais.
Consequentemente, um método e um sistema são fornecidos para títulos de par de negociação.
O invento compreende, portanto, as características de construção, combinação de elementos e disposição de peças que serão exemplificadas na descrição detalhada a seguir, e o escopo da invenção será indicado nas reivindicações. Outras características e vantagens da invenção serão evidentes a partir da descrição, dos desenhos e das reivindicações.
DESCRIÇÃO DOS DESENHOS.
Para uma compreensão mais completa da invenção, é feita referência à seguinte descrição feita em conjunto com os desenhos anexos, nos quais:
FIG. 1 é um diagrama de blocos de um sistema para negociação de títulos em pares de acordo com a presente invenção;
FIG. 2 é um fluxograma das etapas de um motor de troca de pares incluído no sistema da FIG. 1 aplica-se para preencher um pedido de troca de par;
FIG. 3 �um fluxograma dos passos que uma rede de cruzamento de pares inclu�a no sistema da FIG. 1 aplica-se para preencher um pedido de troca de par;
FIG. 4 é um fluxograma de um processo pelo qual a rede de cruzamento de pares do sistema da FIG. 1 preenche pedidos com correspondência imperfeita; e.
FIG. 5 é um gráfico para identificar os preços de mercado de dois títulos que atendem aos limites de spread exigidos.
DESCRIÇÃO DETALHADA DAS FORMAS DE REALIZAÇÃO PREFERIDAS.
Referindo-se agora à FIG. 1, there is shown a block diagram of a system 1 for trading securities in pairs according to the present invention. System 1 receives pair trade requests from clients operating client access devices 7 and attempts to fill the pair trade requests according to the parameters associated with the particular pair trade request. System 1 includes two different subsystems for filling pair trade requests: a pair trading engine 3 and a pair crossing network 5 . As will be described below, pair trading engine 3 receives a pair trade request and attempts to fill (in whole or in part) the trade request by executing the appropriate trades in an external market 13 (that may include, by way of non-limiting example, the New York Stock Exchange, the NASDAQ or any other financial market). Pair trading engine 3 may also fill (in whole or in part) a pair trade request by executing a transaction against order inventory 11 of (non-pair) trade requests controlled by the financial institution that is operating system 1 . In addition, pair trading engine may also fill (in whole or in part) a pair trade request by forwarding the trade request to pair crossing network 5 for matching with other pair trade requests.
Likewise, pair crossing network 5 receives a pair trade request and fulfills (in whole or in part) the request by matching it against another pair trade request received by pair crossing network 5 , by matching the request against inventory 11 controlled by the financial institution and/or by forwarding the trade request to pair trading engine 3 for execution in external markets 13 .
System 1 also includes a portfolio manager 9 (that may be, for example, a software program executing on a computer system) that receives the pair trade requests from client access device 7 and presents the trade request to either pair trading engine 3 , pair crossing network 5 or both, depending on the trade parameters set by the client. Also, the client may query portfolio manager 9 regarding the status of any pair trade request the client has presented to system 1 .
In operation, system 1 may fulfill a pair trade request either using pair trading engine 3 , or pair crossing network 5 , or a combination of the two. For example, a pair trade request received by system 1 may be completely filled by pair trading engine 3 as follows.
Assume a case where XYZ is taking over ABC and is offering 0.575 shares of XYZ for each ABC share and investor Arb wants to invest in the price difference between ABC stock and XYZ stock. To take advantage of the price difference, Arb wants to lock in the difference between the value offered (0.575*XYZ stock) and the value of ABC stock by buying ABC stock and selling XYZ stock subject to the condition that ABC−0.575 XYZ<=−$1.19 (i. e., Arb desires to capture a $1.19 difference between XYZ's takeover offer and ABC's share price).
In order to fill this pair trade, Arb presents a pair trade request to portfolio manager 9 (using client access device 7 ). The pair trade request typically includes a number of parameters that define the pair trade and that also may be used by portfolio manager 9 in determining how the pair trade request is to be filled. Arb typically indicates in the trade request the number of spreads the Arb desires to invest in and also provides a minimum and maximum share amount that he is willing to trade per tranche.
For example, Arb may indicate a desire to invest in 100,000 spreads and may only wish to trade the spread 3,000-8,000 shares at a time. Arb generally sets this tranche size range based on the liquidity and volatility of ABC stock and XYZ stock. Arb may set a larger minimum tranche size if ABC stock and XYZ stock are fairly liquid stocks because higher liquidity increases the likelihood that a larger tranche size will be executed. Arb may set a lower maximum tranche size if XYZ stock and ABC stock are volatile stocks so as to limit the “leg risk” associated with executing a pair trade.
Yet another pair trade parameter Arb provides is the spread limit (in the above case −1.19) which is the amount Arb desires to capture in the trade. Arb does not have to provide, however, the discrete prices at which trades for ABC and XYZ stock are to be executed as these prices are calculated by pair trading engine 3 (and/or pair crossing network 5 ), as will be described below.
Referring now to FIG. 2, there is shown a flowchart describing the steps pair trading engine 3 applies to fill a pair trade request. The flowchart in FIG. 2 is based on the above example and the market data listed in Table 1 below.
Initially, in Step 201 , pair trading engine 3 determines whether the bid/bid prices or ask/ask prices of ABC and XYZ stock, respectively, meet the spread limit requirement of the particular pair trade request. In this case the bid/bid spread is −1.4375((122.50*0.575)−69) and the ask/ask spread is −1.1969 ((122.625*0.575)−69.3125) so that each spread is less than the spread limit of −1.19, as is required for this particular trade. Once it is determined that either the bid/bid spread or the ask/ask spread meets the spread limit, then in Step 202 , it is determined (as is indicated in Table 1) how much XYZ stock can be sold at the bid and how much ABC stock can be bought at the ask. In an exemplary embodiment, the client may specify whether the bid/bid spread, the ask/ask spread or either the bid/bid or the ask/ask spread must exceed the indicated spread limit for a transaction to proceed. If neither the bid/bid spread nor the ask/ask spread meets the spread limit, the process waits a period of time (for example 0.10 seconds) and returns to Step 201 to again test whether the bid/bid spread or the ask/ask spread meets the spread limit.
Next, in step 203 , an equivalent amount of stock that can be sent into the market (i. e., bought/sold in the market) is calculated for a spread based on the bid/bid price spread and/or the ask/ask price spread that meets the spread limit. In this example, if a maximum of 10,000 shares of XYZ stock can be sold into the market (i. e., the XYZ bid size) then, based on the ABC:XYZ ratio (of 1:0.575 in this case), a total of 17,391 (10,000/0.575) shares of ABC stock are to be bought in order to execute a balanced pair trade. Likewise, if a maximum of 1,500 shares of ABC stock can be bought in the market (i. e., the ABC ask size), then, based on the ABC:XYZ ratio (of 1:0.575 in this case), a total of 863 (1500×0.575) shares of XYZ stock are to be sold in order to execute a balanced pair trade.
Next, in Step 204 , the pair trade share amounts calculated in Step 203 are adjusted to conform to the wave maximum and minimum parameters (i. e., the maximum/minimum tranche size) included in the pair trade request as well as market round lot limits. In the above example, the amount of ABC shares to be bought that was calculated based on the XYZ bid size (i. e., 17,391) is first rounded to an even lot size (i. e., 17,400) and then reduced to the maximum tranche size of 8000. Also, the amount of XYZ shares to be offered that was calculated based on the ABC ask size (i. e., 863) is first rounded to an even lot size (i. e., 900) and then increased to 1,700 shares to meet the minimum tranche size of 3000 (3000×0.575=1777). In an exemplary embodiment the minimum and maximum tranche size is scaled by the particular ratio (for example, in the above case, the tranche sizes for XYZ stock is scaled by 0.575). In another embodiment, the maximum/minimum tranche size is used for each security in the pair trade request without scaling. In yet another exemplary embodiment, the pair trade request includes a separate maximum/minimum tranche for each security.
Once the share amounts for the pair trade are calculated, in Step 205 , the share prices that are needed to meet the spread limit of the pair trade request are calculated. For example, for a pair trade based on the bid/bid price spread, in order to meet the spread limit of $1.19 credit, the price at which ABC stock is to be bid should be no greater than $69.2475 ((122.50×0.575)−1.19) a share. Likewise, for a pair trade based on the ask/ask price spread, in order to meet the spread limit, the price at which XYZ stock is to be offered should be greater than or equal to $122.6130 ((69.3125+1.19)/0.575) a share.
Next, once the pair trade share amounts and share prices have been calculated, in Step 206 , pair trading engine 3 sends “initiating” orders to external markets 13 in order to fill the pair trade request. The initiating orders may include an initiating order for executing a pair trade based on the bid/bid spread (in this case a bid for 8,000 shares of ABC stock at $69.2475) and/or an initiating order for executing a pair trade based on the ask/ask spread (in this case an offer of 1,700 shares of XYZ stock at $122.6130).
Finally, as the initiating orders sent to external markets 13 in Step 207 get filled, pair trading engine 3 automatically sends into the market the covering side of the pair trade. So, for example, as the initiating order of buying 8,000 shares of ABC stock at $69.2475 gets filled, pair trading engine 3 sends an order to external markets 13 to sell 4,600 (8,000×0.575) shares of XYZ stock at $122.50.
In an exemplary embodiment, the client's pair trade request includes threshold amounts that indicate the amount of variance in stock price and/or share amount the client is willing to absorb. For example, if in the process of covering the initiating order the price of XYZ stock dips to $122.49 (in which case the spread limit of the pair trade would drop to 1.18), then pair trading engine 3 would still sell XYZ stock at the price of $122.49 if the $0.01 difference was within the threshold amount included in the pair trade request. Similarly, the pair trade request may include threshold amounts for any other pair trade parameter, including by way of non-limiting example, the number of spreads to be purchased and the tranche sizes. If, however, a particular threshold amount indicated by the client is exceeded for any given pair trade parameter, then pair trading engine 3 would attempt to cancel the initiating order and/or the covering order (that may be possible if the orders have not yet reached the market or have not yet been filled). In such a case, pair trading engine 3 would then repeat the above analysis for determining suitable initiating and cover orders.
To fill a pair trade request, pair trading engine 3 executes trades utilizing the method described above. Typically, pair trading engine 3 tranches a pair trade request and trades piece-meal in external markets 13 . In certain cases, however, it may be difficult to fill a trade request by executing several transactions in external markets 13 either because the pair trade request is for a very large number of spreads or includes stocks that are illiquid (in which cases pair trading engine 3 may be ineffective in filling the pair trade request). Also, in certain situations, a client wishing to remain anonymous may indicate in the pair trade request a preference that no orders be sent to external markets 13 . In these circumstances, portfolio manager 9 may route the particular pair trade request to pair crossing network 5 .
Referring now to FIG. 3, there is shown a flowchart illustrating the steps pair crossing network 5 applies to fill a pair trade request. The flowchart in FIG. 3 is based on the above example and the market data listed in Table 2 below.
Continuing the previous example, assume the pair trade request issued by Arb for 100,000 spreads was half-filled by pair trading engine 3 . Also, assume that system 1 receives a pair trade request from Antiarb that indicates a desire to sell 30,000 shares of ABC and buy 17,200 shares (a ratio of 1:0.575) and also indicates a spread limit of 1.30 (i. e., (ABC−0.575XYZ)<=$1.30). In this case Arb and Antiarb's orders are complimentary in the primary order elements—securities, ratios and buy versus sell. Also, Antiarb is willing to pay $0.11 per spread more than Arb is demanding from the marketplace. Based on these parameters, there is an opportunity for Arb's and Antiarb's trade requests to be filled via pair crossing network 5 .
If Antiarb's pair trade request was marked for trading by pair trading engine 3 , then portfolio manager 9 sends Antiarb's order to pair trading engine 3 for execution. Pair trading engine 3 then sends the parameters of Antiarb's trade request, as well as all orders waiting for execution in pair trading engine 3 , to pair crossing network 5 . Pair crossing network 5 will recognize (as described above) that there is a crossing opportunity between Arb's order and Antiarb's order. In this case, pair crossing network 5 then directs pair trading engine 3 to suspend the execution of Antiarb's order in the amount that can be crossed by pair crossing network 5 (30,000 spreads in this case). In addition, pair trading engine 3 routes a cross amount of 30,000 spreads from Arb's order to pair crossing network 5 for crossing against Antiarb's order. At this point, the pair crossing network 5 crosses the Antiarb order against a portion of Arb's order, as follows.
Assume the prevailing market conditions at the time of the cross are as shown in Table 3. Furthermore, Table 3 indicates the XYZ Ratio-Adjusted Value for both the bid and ask prices based on the conversion ratio of 1:0.575. Based on the XYZ Ratio-Adjusted Values, a Bid:Ask Spread Range (i. e., the spread provided for a cross between the bid price of ABC stock and the XYZ Ratio-Adjusted ask price) of −1.3863 is calculated and an Ask:Bid Spread Range (i. e., the spread provided for a cross between the ask price of ABC stock and the XYZ Ratio-Adjusted bid price) of −1.05 is calculated.
To perform the cross, in Step 301 pair crossing network 5 first determines whether the range of spread limits associated with Arb's and Antiarb's trade requests (i. e., $1.30-$1.19) coincides with the range of the prevailing market spread ($1.3863-$1.05). In this example, the range of spread limits does coincide with the prevailing market spread because at least a portion of the spread limit range overlaps with a portion of the market spread. Thus, a cross can occur.
Next, in Step 302 , pair crossing network 5 calculates the mean of Arb's and Antiarb's spread order limit which is ($1.30+$1.19)/2=$1.245 and determines whether the mean is within the range of the market spread (i. e., $1.3863-$1.05). If it is, then in Step 303 , pair crossing network 5 calculates the prices at which to cross. The prices must be within the current markets for ABC stock and XYZ stock, and satisfy market uptick requirements (for short sales), and provide a spread that is equal to the spread level calculated above. For example, with the inside market for ABC stock at 70.00-70.25 and the inside market for XYZ stock at 124.00-124.15, a cross price of 70.11 for ABC stock and 124.096 for XYZ stock provides the spread of 1.2452 thereby meeting the requirement of both Arb's and Antiarb's trade request. Finally, in Step 304 , pair crossing network 5 crosses 30,000 shares of ABC stock at $70.11 (with Arb buying and Antiarb selling) and 17,200 shares of XYZ at $124.096 (with Arb selling and Antiarb buying).
If it is determined in Step 302 that the mean of Arb's and Antiarb's spread order limits does not fall within the range of the market spread, then in Step 305 , the spread closest to the mean of the two spread limits that is also within the market spread is calculated. For example, if the market spread is $1.3863-$1.28, then the mean of the two spread limits ($1.245) is not within the market spread. In such a case, $1.28 is selected as the spread level that is closest to the mean and within the market spread. In an exemplary embodiment, the spread level at which Arb and Antiarb cross can be determined in any other suitable manner as long as the spread level is within the market spread and within the range of spread limits indicated in the pair trade requests.
Once the spread level is determined, the method proceeds to Step 303 in which pair crossing network 5 calculates prices to cross at that are within the current markets for ABC stock and XYZ stock and that meet the calculated spread level. In the case where the calculated spread level is $1.28, the cross will occur at a price of $70.08 for ABC stock and $124.1043 for XYZ stock. Finally, the method proceeds to Step 304 in which pair crossing network 5 performs the cross between Arb and Antiarb.
Once a pair trade request is filled (or partially filled), the transaction details are reported to portfolio manager 9 and made available to the client operating client access device 7 .
In the previous example, pair crossing network 5 crosses orders in which both Arb and Antiarb desire to trade the same pair of securities in the same ratio. In an exemplary embodiment, pair crossing network 5 executes a cross between two pair trade requests that are not perfectly matched.
For example, assume that pair crossing network 5 receives the pair trade requests as shown in Table 4. Note that these two pair trade requests are imperfectly matched because each trade request uses a different ratio between ABC and XYZ stock.
Also, assume the market in ABC and XYZ stocks at the time the pair trade requests are received by pair crossing network 5 is as described in Table 5 below.
Referring now to FIG. 4, there is shown a flowchart illustrating a process by which pair crossing network 5 fills these imperfectly matched order. First, in Step 401 , pair crossing network 5 determines whether Arb's buy security equals Antiarb's sell security and whether Arb's sell security equals Antiarb's buy security. If both conditions are not met, then a cross between the two orders cannot occur. If the two conditions are met, then in Step 402 it is determined whether Arb's buy ratio equals Antiarb's sell ratio and whether Arb's sell ratio equals Antiarb's buy ratio. If these ratios are the same, then pair crossing network 5 proceeds to cross the two orders as described in the example above. Note that for a cross to occur at this stage does not require the ratios themselves to match but rather that the ratios of the ratios match (for e. g., a ratio of 2:3 matches a ratio of 0.667:1).
If, however, the two ratios are not equal (as in this case where Arb's sell ratio does not equal Antiarb's buy ratio), then in Step 403 pair crossing network determines whether there is an overlap between Arb's and Antiarb's spread limit that also falls within the bid/ask market for ABC and XYZ stock. To make such a determination, pair crossing network 5 calculates whether there are market prices for both ABC and XYZ stock that satisfy the following inequalities:
Where L1 is Arb's spread limit of $1.19 credit, L2 is Antiarb's spread limit of $4.40 debit, RatioA is Arb's buy ratio of 1:1, RatioB is Arb's sell ratio of 1:0.575, RatioC is Antiarb's sell ratio of 1:1 and RatioD is Antiarb's buy ratio of 1:0.6.
Referring now to FIG. 5, there is shown a graph 51 that depicts market prices for ABC and XYZ stock that meet the spread limits of Arb and Antiarb. In graph 51 , the x-axis represents the prices for XYZ stock while the y-axis represents the prices for ABC stock. Graph 51 includes a shaded area 53 that is the universe of market prices for ABC and XYZ stock that could satisfy the spread trade involving those stocks. Also included in graph 53 is a spreadlimit line L1 (inequality (1), above) that represents the spread limit associated with Arb and a spread limit line L2 (inequality (2), above) that represents the spread limit associated with Antiarb. Thus, the solution set of market prices that satisfies inequalities (1) and (2) is the portion of dark shared area 53 that falls between spread limit line L1 and spread limit line L2. In this example, a cross at a share price for ABC of $70.14 and a share price of $124.15 for XYZ stock meets the investor's spread limits and falls within the market prices for ABC and XYZ stock.
If it is determined that no share prices for both ABC and XYZ stock satisfy Arb's and Antiarb's spread limits, then no cross can occur. If such share prices do exist, then in Step 404 , it is determined which of the investors desires to transact in fewer shares of ABC stock and a mismatch in share amounts caused by the differing ratios is determined. In our example, Antiarb desires to sell fewer ABC shares than Arb desires to buy (30,000 vs. 50,000). Then, in Step 405 , pair crossing network 5 determines the number of XYZ shares that can be crossed between Arb and Antiarb based on the maximum amount of ABC shares that can be crossed (30,000 in this example). Based on the Antiarb ABC order quantity of 30,000 shares, the maximum number of XYZ shares that Arb will cross with Antiarb is:
30 , 000 * Arb ⁢ ⁢ XYZ ⁢ ⁢ Ratio / Arb ⁢ ⁢ ABC ⁢ ⁢ Ratio = 30 , 000 * 0.575 / 1 = 17 , 300 ⁢ ( 17 , 250 ⁢ ⁢ rounded ⁢ ⁢ to ⁢ ⁢ an ⁢ ⁢ even ⁢ ⁢ lotsize ) .
While the maximum quantity of XYZ shares that Arb will cross is 17,300, Antiarb's trade request indicates a desire to cross 18,000 shares. To overcome this imbalance, in Step 406 , pair crossing network 5 is in communications with external markets 13 for determining whether the excess 700 XYZ shares needed to satisfy Antiarb's trade request can be transacted for in external markets 13 . In an exemplary embodiment, pair crossing network 5 makes this determination by issuing a query to pair trading engine 3 as to whether 700 shares of XYZ stock can be bought in external markets 13 . Because, as indicated in Table 5, 3,000 shares of XYZ stock are offered at $124.15, pair trading engine 3 responds to pair crossing network 5 that the 700 shares needed to balance the cross between Arb and Antiarb are available from external markets 13 at $124.15.
Next, in Step 407 , pair crossing network calculates the cross prices that are necessary such that Arb and Antiarb achieve their respective spread limits while also incorporating the excess 700 shares of XYZ stock that must be purchased from external markets 13 at $124.15 to satisfy Antiarb's trade request. An example of such cross prices that meet these criteria is a price of $70.14 for ABC stock and a price of $124.15 for XYZ stock.
Once the cross prices are calculated, in Step 408 , pair crossing network 5 crosses 30,000 shares of ABC stock and 17,300 shares of XYZ stock between Arb and Antiarb and also buys 700 shares of XYZ stock at $124.15 in external markets 13 on behalf of Antiarb. Thus, both Arb and Antiarb's pair trade requests are satisfied.
Alternatively, the entire 18,000 shares of XYZ stock may be crossed thereby fully satisfying Antiarb's trade request. In such a case, the ratio mismatch is addressed by Arb purchasing an additional 1200 (700/0.575 rounded to a lotsize) shares of ABC stock from external market 13 or from firm inventory 11 .
Once the trade is completed, the details of the transaction are provided to portfolio manager 9 to report the transaction details to the investors.
In an exemplary embodiment, a pair order (or portion thereof) may be filled against an internal inventory 11 of trade requests maintained by the financial institution operating system 1 . For example, in the previous example in which an excess of 700 shares of XYZ stock needs to be purchased in order for a match (i. e., cross) between Arb and Antiarb's trade requests to occur, instead of determining whether the 700 shares are available in external markets 3 , pair crossing network 5 examines firm inventory 11 to determine whether the shares are available at the required price. Likewise, in cases where pair trading engine 3 desires to execute a pair trade based on orders to be sent to external markets 13 , pair trading engine 3 may first determine whether the order can be filled, in whole or in part, using trade requests pending in firm inventory 11 . Generally, the advantages of filling an order using pending trade requests in firm inventory 11 is that execution is faster, transaction costs are lower and leg risk is minimized.
In another exemplary embodiment, a client's pair trade request may also include a minimum number of spreads that can be traded in pair crossing network 5 . Also, pair crossing network 5 may be designed to require a minimum share amount for a cross to occur. A minimum number of spreads that can be traded may be provided in order to reduce the distractions and booking costs associated with numerous smaller trades that may exceed the benefits of a de minimis fill.
In another exemplary embodiment, portfolio manager 9 publishes the “inside cross market” for any pair that a client has selected for crossing in pair crossing network 5 . In still another exemplary embodiment, the client has the option for each pair trade selected for crossing in pair crossing network 5 to designate that the order should be reflected in the published inside cross market. This inside cross market consists of the tightest spread bid and offer (and corresponding bid size and offer size) from all client pair orders pending in pair crossing network 5 . In this way, a client can assess the likelihood and timing of a pair trade request being filled by pair crossing network 5 . Also, by publishing the client's spread interest, others seeking liquidity can trade at the client's level.
In an exemplary embodiment, the client can designate each pair order designated for pair trading engine 3 and/or pair crossing network 5 for “Broker Negotiation.” If “Broker Negotiation” is designated, the client's broker-dealer sales representative is notified of the client's spread order thereby prompting the broker-dealer to solicit a complementary, agency order from another client. The client may also designate each pair order for “Broker Facilitation” in which case the client allows the broker-dealer to act principally to fill the client's order.
In summary, the advantages to a client of using pair trading engine 3 is that pair trading engine 3 allows the client to trade a spread order while limiting leg risk or the risk of missing a targeted spread level. This is accomplished by breaking the total order into tranches of sizes proportionate to the market, subject to user minimums and maximums, that can be traded in external markets 13 or against firm inventory 11 . Orders executed via pair trading engine 3 , however, are typically of a lower traded volume because trading is constrained to the liquidity available in the market. In contrast, trades executed via pair crossing network 5 are not constrained by market liquidity and do not have to be tranched to minimize leg risk. In particular, the benefits of filling a pair trade request via pair crossing network 5 are as follows: Elimination of Leg Risk. Pair crossing network 5 potentially provides a deeper well of liquidity because the trades are brokered, as a spread, directly between spread investors via a central clearing facility. Moreover, the introduction and use of a pair trading facility eliminates the ‘leg’ risk described above without a sacrifice of liquidity. Large Transactions Only. Certain large investors may prefer to use pair crossing network 5 rather than pair trading engine 3 to avoid having a trade request broken up into numerous small executions. For example, sudden, brief moves in one of the two stocks included in the pair trade request may cause pair trading engine 3 to issue numerous small executions to fill the request. While a small investor may welcome capturing these small opportunities, a large investor may find such small executions to be more of a nuisance than a service. Price Setting versus Price Taking. Large investors seeking liquidity may prefer to ‘set’ their price via the pair crossing network 5 . Also, other spread investors looking for liquidity can use pair crossing network 5 to monitor and trade with the large investor at the large investor's level. While client orders directed to pair trading engine 3 can designate a spread limit, such orders are essentially “price-takers”—as the market reaches the desired level, the orders are executed. Moreover, the pair trading engine tranching mechanism creates relatively small orders, allowing institutional flows to move the individual stocks. As a result, the small, tranched orders generated by pair trading engine 3 can become ‘overpowered’ by single-name institutional flows. In addition, orders designated solely for pair trading engine 3 , and not for pair crossing network 5 , are not published to a central quote facility (such as by portfolio manager 9 ) thereby preventing other spread traders from knowing the size and limit of a pair trading engine order. Illiquid Stocks vs Liquid Stocks. Spreads that include one or two illiquid stocks are difficult to fill using pair trading engine 3 alone. Because illiquid stocks often demonstrate small bid and ask sizes and wide bid-ask spreads, pair trading engine 3 will typically only issue market orders having small quantities (subject to user minimums and maximums) that presents the client with greater leg risk from mid-trade changes in the bid-ask prices. In contrast, orders routed to price crossing network 5 are not confined by liquidity in the market place thereby allowing large crosses between spread traders in illiquid spreads.
Accordingly, a system and method for trading pair securities is provided in which the client receives the benefits of having a pair order filled by either pair trading engine 3 , pair crossing network 5 or a combination of both.
A number of embodiments of the present invention have been described. Nevertheless, it will be understood that various modifications may be made without departing from the spirit and scope of the invention. Based on the above description, it will be obvious to one of ordinary skill to implement the system and methods of the present invention in one or more computer programs that are executable on a programmable system including at least one programmable processor coupled to receive data and instructions from, and to transmit data and instructions to, a data storage system, at least one input device, and at least one output device. Each computer program may be implemented in a high-level procedural or object-oriented programming language, or in assembly or machine language if desired; and in any case, the language may be a compiled or interpreted language. Suitable processors include, by way of example, both general and special purpose microprocessors. Furthermore, alternate embodiments of the invention that implement the system in hardware, firmware or a combination of both hardware and software, as well as distributing modules and/or data in a different fashion will be apparent to those skilled in the art and are also within the scope of the invention. In addition, it will be obvious to one of ordinary skill to use a conventional database management system such as, by way of non-limiting example, Sybase, Oracle and DB2, as a platform for implementing the present invention. Also, network access devices can comprise a personal computer executing an operating system such as Microsoft Windows™, Unix™, or Apple Mac OS™, as well as software applications, such as a JAVA program or a web browser. Access devices can also be a terminal device, a palm-type computer, mobile WEB access device or other device that can adhere to a point-to-point or network communication protocol such as the Internet protocol. Computers and network access devices can include a processor, RAM and/or ROM memory, a display capability, an input device and hard disk or other relatively permanent storage. Accordingly, other embodiments are within the scope of the following claims.
It will thus be seen that the objects set forth above, among those made apparent from the preceding description, are efficiently attained and, since certain changes may be made in carrying out the above process, in a described product, and in the construction set forth without departing from the spirit and scope of the invention, it is intended that all matter contained in the above description shown in the accompanying drawing shall be interpreted as illustrative and not in a limiting sense.
It is also to be understood that the following claims are intended to cover all of the generic and specific features of the invention herein described, and all statements of the scope of the invention, which, as a matter of language, might be said to fall therebetween.

Pair trading system and method

This application claims the benefit of the filing date of U. S. provisional application serial No. 60/334,163 entitled “Method and System for Trading Pairs of Securities,” that was filed on Nov. 29, 2001, the contents of which are incorporated by reference herein.
The following invention relates to a system and method for trading securities and, in particular, for a system and method of submitting pair trade requests.
A recognized strategy for trading securities is known as pair-trading. Pair-trading is a non-directional investment strategy in which the investor identifies two securities having similar characteristics and the securities are currently trading at a price relationship that is out of their historical trading range. The investor exploits the price relationship between the securities by buying the undervalued security while short-selling the overvalued security. Because pair-trading is a market-neutral strategy, it is a particularly desirable strategy for investing in volatile markets.
One context in which pair trading is useful is where an investor desires to take advantage of an arbitrage opportunity resulting from a merger between two companies. For example, Company A has announced a definitive agreement to acquire Company T in which case Company T shareholders will receive 0.5 shares of Company A stock for each share of Company T stock they own. The investor desires to capture the “spread” between the offered consideration (0.5 shares of A) and the price of T stock. To do this, the investor buys shares in T stock and sells shares of A stock.
For instance, if stock T is trading at $28 per share and stock A is trading at $60 per share, then the investor may execute a trade for 200,000 spreads by buying 200,000 shares of T stock and selling 100,000 shares of A stock. After the merger takes place, the investor will cover the short position in stock A with the 100,000 shares of A stock the investors receives in exchange of the 200,000 shares the investor held of stock T. Thus, by executing the pair trade, the investor locks in a $400,000 profit (assuming that the merger goes through).
An investor desiring to execute a pair trade first formulates a pair trade request. A pair trade request is characterized by a plurality of parameters including, for example, a spread quantity, a buy ticker, a sell ticker, a buy trading ratio, a sell trading ratio, whether to trade oddlots, whether to execute a short sale, whether to work the bid side of a spread (i. e., buy stock first and take short-sale execution risk), a minimum wave size (i. e., the minimum share amount per tranche), a maximum wave size (i. e., the maximum share amount per tranche), a slippage factor, a wave stop loss unit, a nuisance cancel amount, an improve cancel unit, a minimum order distance, an order limit type (e. g., dollar difference, percent premium or discount, sell over buy or buy over sell, cash-adjusted) and order limit parameters (e. g., buy calculation ratio, sell calculation ratio, cash offset). Once a pair trade request is formulated, the investor typically presents the pair trade request to a broker affiliated with a financial institution for execution.
Because the formulation of a pair trade request requires that the investor specify numerous parameters, it takes time for the investor to prepare and submit a pair trade request to exploit a particular market condition. This time required may cause an investor to miss a potentially profitable trading opportunity, especially in fast-moving markets.
Accordingly, it is desirable to provide a system and method for submitting pair trade requests.
SUMMARY OF THE INVENTION.
The present invention is directed to overcoming the drawbacks of the prior art pair trading practices. Under the present invention a method for trading a pair of securities is provided and includes the steps of retrieving a previously configured pair trade request and the previously configured pair trade request is submitted to a pair trade fulfillment module.
In an exemplary embodiment, the method includes the step of archiving at least one past pair trade in a pair trade archive and further includes the step of retrieving the at least one past pair trade from the pair trade archive.
In an exemplary embodiment, the method includes the step of storing at least one pre-defined pair trade request in a pair trade library and further includes the step of retrieving the at least one pre-defined pair trade from the pair trade library.
In an exemplary embodiment, the at least one pre-defined pair trade is formulated by a pair trader.
In an exemplary embodiment, the method includes the step of retrieving a previously configured pair trade request based on at least one search criteria.
In an exemplary embodiment, the at least one search criteria is a date.
In an exemplary embodiment, the at least one search criteria is selected from a group including a trader name and a security name.
In an exemplary embodiment, the previously configured pair trade request includes a plurality of parameters and the method further includes the step of modifying at least one of the plurality of parameters.
In an exemplary embodiment, the plurality of parameters includes parameters from the group including a buy symbol, a buy quantity, a sell symbol, a sell quantity, a buy ratio, a sell ratio, a minimum wave amount, a maximum wave amount and a slippage amount.
In an exemplary embodiment, the previously configured pair trade request includes a plurality of parameters and further includes step of providing a shortcut for automatically modifying at least one of the plurality of parameters according to a trading strategy.
In an exemplary embodiment, the shortcut is selected from the group including Flip with Short, Flip with Long, Toggle Short and Order Unfilled Quantity.
Under the present invention, a system of trading a pair of securities is provided and includes a pair trade fulfillment module for fulfilling a pair trade request. Also included is a pair trade store for storing previously configured pair trades. At least one of the previously configured pair trades is retrieved from the pair trade store and is submitted to the pair trade fulfillment module.
In an exemplary embodiment, the pair trade store is a pair trade archive for storing past pair trades.
In an exemplary embodiment, the pair trade store is a pair library for storing pre-defined pair trades.
Accordingly, a method and a system are provided for trading pair securities.
The invention accordingly comprises the features of construction, combination of elements and arrangement of parts that will be exemplified in the following detailed disclosure, and the scope of the invention will be indicated in the claims. Other features and advantages of the invention will be apparent from the description, the drawings and the claims.
DESCRIPTION OF THE DRAWINGS.
For a fuller understanding of the invention, reference is made to the following description taken in conjunction with the accompanying drawings, in which:
FIG. 1 is a block diagram of a pair trading system according to the present invention;
FIG. 2 is a screenshot of a listing of past pair trades retrieved from a pair trade archive of the system of FIG. 1;
FIG. 3 is a screenshot of a listing of pair trades retrieved from a pair library of the system of FIG. 1; e.
FIG. 4 is a screenshot of a GUI a client uses to modify a pair trade retrieved from the pair library and pair trade archive of FIG. 1.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS.
Referring now to FIG. 1 , there is shown a block diagram of a pair trading system 1 according to the present invention. System 1 receives pair trade requests from clients operating client access device 7 and attempts to fill the pair trade requests according to the parameters associated with the particular pair trade request. System 1 includes a pair trade fulfillment module 3 for fulfilling pair trade requests received from clients. In an exemplary embodiment, pair trade fulfillment module 3 includes a pair trading engine 5 and/or a pair crossing network 9 for filling pair trade requests. Based on market conditions and/or preferences included in the pair trade request, pair fulfillment module 3 routes the pair trade request (either in whole or in part) to either pair trading engine 5 or pair crossing network 9 for fulfillment. For example, pair fulfillment module 3 may route a pair trade request to pair trading engine 5 that then attempts to fill trade request by executing the appropriate trades in an external market 13 (that may include, by way of non-limiting example, the New York Stock Exchange, the NASDAQ or any other financial market), or against an inventory 15 of trade request maintained by a financial institution. In addition, trade fulfillment module 3 may also fill (in whole or in part) a pair trade request by forwarding the trade request to pair crossing network 9 for matching with other pair trade requests. If a pair trade request is routed to pair crossing network 9 , pair crossing network 9 fulfills the request (in whole or in part) by matching it against another pair trade request received by pair crossing network 9 , by matching the request against inventory 15 controlled by the financial institution and/or by forwarding the trade request to pair trading engine 5 for execution in external markets 13 .
In operation, system 1 may fulfill a pair trade request either using pair trading engine 5 , or pair crossing network 9 , or a combination of the two. For example, a pair trade request received by system 1 may be completely filled by pair trading engine 5 as follows.
Assume a case where XYZ is taking over ABC and is offering 0.575 shares of XYZ for each ABC share and investor Arb wants to invest in the price difference between ABC stock and XYZ stock. To take advantage of the price difference, Arb wants to lock in the difference between the value offered (0.575 * XYZ stock) and the value of ABC stock by buying ABC stock and selling XYZ stock subject to the condition that ABC−0.575 XYZ<=−$1.19 (i. e., Arb desires to capture a $1.19 difference between XYZ's takeover offer and ABC's share price).
In order to fill this pair trade, Arb presents a pair trade request to client interface module 11 (using client access device 7 ). The pair trade request typically includes a number of parameters that define the pair trade and that also may be used by client interface module 11 in determining how the pair trade request is to be filled. Arb typically indicates in the trade request the number of spreads the Arb desires to invest in and also provides a minimum and maximum share amount that he is willing to trade per tranche.
For example, Arb may indicate a desire to invest in 100,000 spreads and may only wish to trade the spread 3,000-8,000 shares at a time. Arb generally sets this tranche size range based on the liquidity and volatility of ABC stock and XYZ stock. Arb may set a larger minimum tranche size if ABC stock and XYZ stock are fairly liquid stocks because higher liquidity increases the likelihood that a larger tranche size will be executed. Arb may set a lower maximum tranche size if XYZ stock and ABC stock are volatile stocks so as to limit the “leg risk” associated with executing a pair trade.
Yet another pair trade parameter Arb provides is the spread limit (in the above case −1.19) which is the amount Arb desires to capture in the trade. Arb does not have to provide, however, the discrete prices at which trades for ABC and XYZ stock are to be executed as these prices are calculated by pair trading engine 5 (and/or pair crossing network 9 ).
System 1 also includes a pair trade archive 17 in communications with pair fulfillment module 3 for storing all pair trade requests received by pair fulfillment module 3 . In an exemplary embodiment, pair trade archive 17 is a database file having a record format for storing all the parameters for the particular pair trade request. In addition, additional fields in the record are included for identifying the trader that forwarded the particular pair trade request, whether the trade was filled (in whole or in part), when the trade was filled, what portions of the trade were filled by pair trading engine 5 (if any), what portions of the trade were filled by pair crossing network (if any), as well as fields for any other desired parameter.
In an exemplary embodiment, client interface module 11 provides the client with a graphical user interface (GUI) via which the client can browse through past pair trade requests stored in pair trade archive 17 or can search through past pair trade requests based on various search criteria. The search criteria may include, by way of non-limiting example, the securities included in the trade request, the trader that formulated the pair trade request, the date of the trade request. The GUI also enables the client to examine all the information associated with a particular pair trade request that is stored in pair trade archive 17 . Alternatively, client access device may include a GUI via which the client accesses client interface module 11 for browsing past pair trade requests.
Referring now to FIG. 2 , there is shown a screenshot 201 of a listing of past pair trades that fall within a date range of Mar. 5, 2002 to Mar. 8, 2002 that were retrieved from pair trade archive 17 . Screenshot 201 includes various fields associated with each displayed trade request including a trader field 203 , a product code field 205 (that stores the product code for a security pair), an entry time field 207 (date of entry), a buy symbol field 209 (that stores the stock symbol for the security that is to be bought), a buy quantity field 211 (that stores the number of shares of the buy symbol that is to be bought), a buy fill quantity field 213 (that stores the total number of shares of the buy symbol that was bought on a specified day, if applicable), a buy average price field 215 (that stores the average price of the buy symbol shares that were bought on a specified day, if applicable), a buy ratio field 217 (that stores the ratio of buy symbol shares to the total number of spreads to be transacted), a sell symbol field 219 (that stores the stock symbol for the security that is to be sold), a sell quantity field 221 (that stores the total number of shares of the sell symbol that is to be sold on a specific day, if applicable), sell fill quantity field 223 (that stores the total number of shares of the sell symbol that were sold on a specific day, if applicable), a sell average price field 225 (that stores the average price of the sell symbol shares that were sold on a specific day, if applicable), a sell ratio field (not shown) (that stores the ratio of sell symbol shares to the total number of shares that are to be transacted), a minimum wave amount (not shown), a maximum wave amount (not shown) and a slippage amount (not shown) (that is a user-specified offset to the user's spread limits that is used by trade fulfillment module 3 to modify the specified spread limits). Other fields that may be included are a wave stop loss unit (i. e., indicates when an existing cover order is to be cancelled and a more aggressive price is to be paid with the difference being accepted as a “leg”), a nuisance cancel amount (i. e., the de minimis amount by which the good quantity must change before an existing initiating order is cancelled and replaced with a fresh quantity), an improve cancel unit (i. e., indicates when an existing order is cancelled to improve an initiating order) and a minimum order distance (i. e., indicates how close to the inside market an initiating order price must be before an order is sent). In addition, any other desirable fields may be displayed to the client in a similar or any suitable manner.
If the client desires to form a trade request based on a past pair trade request stored in pair trade archive 17 , the client may select the desired past trade request (for example, by clicking on the particular past trade request displayed in screenshot 201 using a pointing device) for further review and/or modification. The client may then modify any of the pair trade request parameters to suit a particular trading situation. In an exemplary embodiment, aside from the client directly modifying the pair trade parameters, the GUI includes shortcuts (such as buttons) for modifying the pair trade parameters automatically in a predefined manner. For example, the GUI may include a shortcut called “Flip w/Short” in which the system switches the buy and sell tickers, switches the buy and sell ratios and designates the sale as a short-sale. The Flip w/Short shortcut is useful where a trader wants to reinitiate a recently unwound trade. The GUI may include a “Flip w/Long” shortcut in which the system switches the buy and sell tickers, switches the buy and sell ratios and designates the sale as a long-sale. The Flip w/Long shortcut is useful where a trader wants to unwind a recently initiated trade. The GUI may include a “Toggle Short” shortcut in which the system toggles the sell designation as short or long. The GUI may also include a “Order Unfilled Quantity” shortcut in which the system reduces a past order by the executions of a reference day. This shortcut is useful where a trader wants to continue trading the residual of a previous day's order. In addition, other shortcuts may be provided to simplify the process of modifying a past pair trade to suit a particular trading situation.
Once the client either modifies the pair trade parameters or determines that the parameters are suitable without modification, the client may forward the pair trade request to trade fulfillment module 3 with a single keystroke or mouse click (or any other suitable user interface technique). Thus, by retrieving a past pair trade from pair trade archive 17 and modifying it as required, the client is able to form and submit a pair trade request rapidly.
System 1 also includes a pair library 21 that includes pre-defined pair trades having parameters that are designed to exploit a particular market condition. These pair trades may be formed by a pair trader on behalf of a financial institution and are input into pair library 21 via a pair library access device 23 (for example, a personal computer in communications with pair library 21 ). In this way, the client has access to pair trades constructed by a professional pair trader that is closely tracking the markets. As in the case with past pair trades stored in pair trade archive 17 , a client may access the pair trades stored in pair library 21 via the GUI associated with client interface module 11 .
In an exemplary embodiment, the pair trades stored in pair library 21 are “pushed” to client access device 7 (via client interface module 11 ) so that client access device 7 contains all the pair trades included in pair library 21 at any given time. The pair trades in pair library 21 may be communicated to client access device 7 at any time using any communications medium such as, by way of non-limiting example, the Internet. Preferably, the pair trades are communicated to client access device 7 during time periods of lower activity over the communications medium. The benefit of communicating all the pair trades in pair library 21 to client access device 7 is that users will have faster access to the pair trades than if they had to access pair library 21 directly during peak trading times.
Referring now to FIG. 3 , there is a screenshot 301 of a listing of pair trades retrieved from pair library 21 . Screenshot 301 includes a directory frame 303 in which the client can navigate a directory tree 305 according to which the pair trades in pair library 21 are organized. Also included is a search results frame 307 that displays the parameters of all the pre-defined pair trades that correspond to the selection in directory tree 305 . Search results frame 307 displays all the pre-defined parameters associated with a particular pair trade including a buy symbol 309 , a sell symbol 311 , a sell ratio 313 , a buy ratio (not shown) as well as any other parameters. To choose a particular pair trade, the client selects one of the displayed pair trades in search results frame 307 in any convenient manner such as, by way of non-limiting example, double-clicking on the particular pair trade with a pointing device.
Referring now to FIG. 4 , there is a screenshot 401 of a GUI a client uses to modify a pair trade retrieved from pair library 21 . Once the client selects a particular pair trade from search results frame 307 , the selected pair trade parameters are displayed in a main frame 403 . If the client desires to modify any of the pair trade parameters or supply trade quantities, an update pair pop-up window 405 is provided in which the client can supply/change any of the pair trade parameters. For example, window 405 includes quantity fields 407 in which the buy and sell quantities may be entered, minimum and maximum wave amount fields 409 and a slippage field 411 . In addition, the client may use the GUI of screenshot 401 to modify a pair trade retrieved from pair trade archive 17 . For example, the client may retrieve past pair trades by either entering reference information into a ticker field 415 or entering a range of dates into a date range field 417 and activating a query button to retrieve the past pair trades that meet the search criteria provided. The retrieved past pair trades are then displayed in main frame 403 . Once a past pair trade is retrieved and displayed in main frame 403 , the client can update pair pop-up window 405 to supply/change any of the pair trade parameters.
Once the client enters the desired information and activates the “Update” button 413 , the parameters associated with the particular pair trade selected in main frame 403 reflect the updates provided by the client. If the parameters for a particular pair trade are satisfactory, the client may then forward a pair trade request based on the selected pair trade to trade fulfillment module 3 for fulfillment. In an exemplary embodiment, the client submits a trade by activating an Add To Portfolio button 421 .
Accordingly, a method and a system are provided for trading pair securities in which past pair trades are stored and made available for clients upon which future trades can be based. Also included is a pair library for storing pre-defined pair trades formulated by a skilled pair trader that serves as a template for client pair trade requests. By providing past pair trades and pre-defined pair trades to the client, the client can quickly formulate a pair trade request and forward such request to a pair trade fulfillment module for fulfillment. In this way, the client can take advantage of pair trading opportunities even in fast-moving markets.
A number of embodiments of the present invention have been described. Nevertheless, it will be understood that various modifications may be made without departing from the spirit and scope of the invention. Based on the above description, it will be apparent to one of ordinary skill to implement the system and methods of the present invention in one or more computer programs that are executable on a programmable system including at least one programmable processor coupled to receive data and instructions from, and to transmit data and instructions to, a data storage system, at least one input device, and at least one output device. Each computer program may be implemented in a high-level procedural or object-oriented programming language, or in assembly or machine language if desired; and in any case, the language may be a compiled or interpreted language. Suitable processors include, by way of example, both general and special purpose microprocessors. Furthermore, alternate embodiments of the invention that implement the system in hardware, firmware or a combination of both hardware and software, as well as distributing modules and/or data in a different fashion will be apparent to those skilled in the art and are also within the scope of the invention. In addition, it will be apparent to one of ordinary skill to use a conventional database management system such as, by way of non-limiting example, Sybase, Oracle and DB2, as a platform for implementing the present invention. Also, network access devices can comprise a personal computer executing an operating system such as Microsoft Windows™, Unix™, or Apple Mac OS™, as well as software applications, such as a JAVA program or a web browser. Access devices 7 and can also be a terminal device, a palm-type computer, mobile WEB access device or other device that can adhere to a point-to-point or network communication protocol such as the Internet protocol. Computers and network access devices can include a processor, RAM and/or ROM memory, a display capability, an input device and hard disk or other relatively permanent storage. Accordingly, other embodiments are within the scope of the following claims.
It will thus be seen that the objects set forth above, among those made apparent from the preceding description, are efficiently attained and, since certain changes may be made in carrying out the above process, in a described product, and in the construction set forth without departing from the spirit and scope of the invention, it is intended that all matter contained in the above description shown in the accompanying drawing shall be interpreted as illustrative and not in a limiting sense.
It is also to be understood that the following claims are intended to cover all of the generic and specific features of the invention herein described, and all statements of the scope of the invention, which, as a matter of language, might be said to fall therebetween.

Pair trading system and method

This application is a divisional application of U. S. patent application Ser. No. 10/206,549, entitled “Pair trading system and method”, which was filed on Jul. 25, 2002 now U. S. Pat. No. 7,412,415, which claims priority to U. S. provisional patent application Ser. No. 60/334,163 entitled “Method and System for Trading Pairs of Securities” that was filed on Nov. 29, 2001. The contents of both applications are herein incorporated by reference.
The following invention relates to a system and method for trading securities and, in particular, for a system and method of trading securities in pairs.
A recognized strategy for trading securities is known as pair-trading. Pair-trading is a non-directional investment strategy in which the investor identifies two securities having similar characteristics and the securities are currently trading at a price relationship that is out of their historical trading range. The investor exploits the price relationship between the securities by buying the undervalued security while short-selling the overvalued security. Because pair-trading is a market-neutral strategy, it is a particularly desirable strategy for investing in volatile markets.
One context in which pair trading is useful is where an investor desires to take advantage of an arbitrage opportunity resulting from a merger between two companies. For example, Company A has announced a definitive agreement to acquire Company T in which case Company T shareholders will receive 0.5 shares of Company A stock for each share of Company T stock they own. The investor desires to capture the “spread” between the offered consideration (0.5 shares of A) and the price of T stock. To do this, the investor buys shares in T stock and sells shares of A stock.
For instance, if stock T is trading at $28 per share and stock A is trading at $60 per share, then the investor may execute a trade for 200,000 spreads by buying 200,000 shares of T stock and selling 100,000 shares of A stock. After the merger takes place, the investor will cover the short position in stock A with the 100,000 shares of A stock the investors receives in exchange of the 200,000 shares the investor held of stock T. Thus, by executing the pair trade, the investor locks in a $400,000 profit (assuming that the merger goes through). The process of executing a pair trade thus includes executing individual trades directed to each leg of the pair trade request. An example of a system for executing trades for filling a pair trade request is the Quantex system from ITG (itginc/products/quantex/quantex. html) of 380 Madison Avenue, New York, N. Y. 10017.
A challenge in implementing a pair trade is to find a counterparty for a particular position an investor desires to establish while minimizing “leg risk.” Typically, a large pair trade is performed “off the market” as a private transaction negotiated by a financial institution that services large clients. For example, if an investor desires to execute a pair trade betting that a proposed merger between two companies will go through, the investor would approach a financial institution seeking an investor that is willing to bet against the merger. The financial institution then acts as an intermediary between the two investors in which the investors establish equal and opposite positions in the stock of the proposed merger partners thereby completing the pair trade. Thus by matching two pair trade requests so that the transactions associated with each of the pair trade legs are executed simultaneously, neither investor is exposed to leg risk that would otherwise result for the period of time between execution of the first leg and the second leg of the pair trade.
There are numerous drawbacks associated with the prevalent pair-trading practice. First, pair-trading is typically limited to clients of large financial institutions that have the ability to identify suitable counterparties for a particular pair trade. This is especially the case when the pair trade involves a large amount of stock or illiquid stocks in which the only way to execute the trade and minimize leg risk is via an “off the market” transaction negotiated by a financial institution. Also, because a pair-trade is typically negotiated by the parties with a financial institution as an intermediary, the process is often slow and inefficient. Furthermore, pair-trading under current practice is generally best suited for large clients seeking to establish large positions thereby providing the financial institutions with the economic incentive to execute the transaction. Smaller clients, however, must rely on the markets for executing pair trades, which is unsuitable for illiquid stocks and also results in increased leg risk.
Accordingly, it is desirable to provide a system and method for trading securities in pairs.
SUMMARY OF THE INVENTION.
The present invention is directed to overcoming the drawbacks of the prior art pair trading practices. Under the present invention a method is provided for fulfilling a pair trade request and includes the steps of receiving a plurality of pair trade requests; executing a transaction for a first portion of one of the plurality of pair trade requests and matching a second portion of the one of the plurality of pair trade requests against another of the plurality of pair trade requests.
In an exemplary embodiment, the method includes the step of executing a transaction for a first portion of one of the plurality of pair trade requests in an external market.
In another exemplary embodiment, the method includes the step of executing a transaction for a first portion of one of the plurality of pair trade requests against the order inventory.
In yet another exemplary embodiment, the pair trade request includes a first security having a bid price and an ask price and a second security having a bid price and an ask price, and the method includes the steps of determining whether the bid price of the first security and the bid price of the second security meet a spread limit; determining an amount of the second security that can be sold based on a bid size associated with the second security; calculating an equivalent amount of the first security that can be bought based on the amount of the second security that can be sold; adjusting the equivalent amount of the first security based on adjustment criteria; calculating a purchase price for the adjusted equivalent amount of the first security based on the spread limit; executing an initiating order to buy the adjusted equivalent amount of the first security at the purchase price and executing a covering order to sell the amount of the second security.
In still yet another exemplary embodiment, the method includes the step of executing a covering order to sell the amount of the second security at the bid price of the second security.
In an exemplary embodiment, the method includes the steps of determining whether the ask price of the first security and the ask price of the second security and/or the bid price of the first security and the bid price of the second security meet a spread limit; determining an amount of the first security that can be bought based on an offer size associated with the first security; calculating an equivalent amount of the second security that can be sold based on the amount of the second security that can be bought; adjusting the equivalent amount of the second security based on adjustment criteria; calculating a selling price for the adjusted equivalent amount of the second security based on the spread limit; executing an initiating order to sell the adjusted equivalent amount of the second security at the selling price and executing a covering order to purchase the amount of the first security.
In another exemplary embodiment, the method includes the step of executing a covering order to purchase the amount of the first security at the ask price of the first security.
In yet another exemplary embodiment, the adjustment criteria include a minimum amount and a maximum amount.
In still yet another exemplary embodiment, the method includes the step of rounding the initiating order to a round lot size.
In an exemplary embodiment, the method includes the step of executing a first portion of one of the plurality of pair trade requests in a plurality of tranches.
In another exemplary embodiment, the one of the plurality of pair trade requests and the another of the plurality of pair trade requests include a first security and a second security, the one of the plurality of pair trade requests has a first spread limit and the another of said plurality of trade requests has a second spread limit and wherein the method includes the steps of determining that a range of the first spread limit and the second spread limit overlaps with a market spread; setting a spread level; calculating prices for the first security and the second security that are within the market spread and based on the spread level and matching the second portion of the one of the plurality of pair trade requests against another of the plurality of pair trade requests based on the calculated prices.
In yet another exemplary embodiment, the method includes the steps of calculating a mean between the first spread limit and the second spread limit and setting the spread level as the mean if the mean is within the market spread.
In still yet another exemplary embodiment, the method includes the step of identifying a spread amount that is closest to the mean and within the market spread and setting the spread level as the spread amount if the mean is not within the market spread.
In an exemplary embodiment, the one of the plurality of pair trade requests and the another of the plurality of pair trade requests include a first security and a second security, the one of the plurality of pair trade requests has a first spread limit, a buy ratio and a sell ratio, the another of the plurality of trade requests has a second spread limit, a buy ratio and a sell ratio and the method includes the steps of determining that the buy ratio and the sell ratio associated with the one of the plurality of trade requests does not equal the buy ratio and the sell ratio of the another of the plurality of trade requests and that an overlap exists between range of the first spread limit and the second spread limit and a market spread; determining that market prices exist that are within the overlap; determining a mismatch amount in the second security based on a difference between the buy ratio and the sell ratio associated with the one of the plurality of trade requests and the buy ratio and the sell ratio of the another of the plurality of trade requests; calculating a cross amount for the first security and the second security; selecting a crossing price for the first security and the second security that is within the overlap; determining that the mismatch amount is available at the crossing price for the second security; matching the second portion of the one of the plurality of pair trade requests against another of the plurality of pair trade requests based on the calculated prices and executing a transaction for the mismatch amount of the second security at the crossing price for the second security.
In another exemplary embodiment, the method includes the step of determining that the mismatch amount is available in an external market at the crossing price for the second security.
In yet another exemplary embodiment, the method is performed by a financial institution having order inventory and includes the step of determining that the mismatch amount is available in the order inventory at the crossing price for the second security.
In still yet another exemplary embodiment, the one of the plurality of pair trade requests and the another of the plurality of pair trade requests indicate a number of spreads and the method includes the step of matching a second portion of the one of the plurality of pair trade requests against another of the plurality of pair trade requests if the number of spreads is greater than a minimum number of spreads.
In an exemplary embodiment, the method includes the step of receiving a preference for filling at least some of the plurality of trade requests via the step of executing a transaction for a first portion of one of the plurality of pair trade requests, described above.
In another exemplary embodiment, the method includes the step of receiving a preference for filling at least some of the plurality of trade requests via the step of matching a second portion of the one of the plurality of pair trade requests against another of the plurality of pair trade requests, described above.
Under the present invention, a method for fulfilling a pair trade request is provided and includes the steps of receiving a plurality of pair trade requests and matching at least a portion of one of the plurality of pair trade requests against another of the plurality of pair trade requests.
Under the present invention, a system for fulfilling a pair trade request is provided, the system receiving a plurality of pair trade requests and includes a pair trading engine for executing a transaction for a first portion of one of the plurality of pair trade requests. The system also includes a pair crossing network for matching a second portion of said one of the plurality of pair trade requests against another of the plurality of pair trade requests.
In an exemplary embodiment, the system includes a link to external markets and wherein the pair trading engine executes the transaction for the first portion of one of the plurality of pair trade requests in the external markets.
In another exemplary embodiment, the system includes a financial institution having an order inventory and wherein the pair trading engine executes the transaction for the first portion of one of the plurality of pair trade requests against the order inventory.
In yet another exemplary embodiment, the pair trade request includes a first security having a bid price and an ask price and a second security having a bid price and an ask price, and wherein the pair trading engine determines whether the bid price of the first security and the bid price of the second security meet a spread limit; determines an amount of the second security that can be sold based on a bid size associated with the second security; calculates an equivalent amount of the first security that can be bought based on the amount of the second security that can be sold; adjusts the equivalent amount of the first security based on adjustment criteria; calculates a purchase price for the adjusted equivalent amount of the first security based on the spread limit; executes an initiating order to buy said adjusted equivalent amount of the first security at the purchase price and executes a covering order to sell the amount of the second security.
In still yet another exemplary embodiment, the pair trading engine executes a covering order to sell the amount of the second security at the bid price of the second security.
In an exemplary embodiment, the pair trading engine determines whether the ask price of the first security and the ask price of the second security meet a spread limit; determines an amount of the first security that can be bought based on an offer size associated with the first security; calculates an equivalent amount of the second security that can be sold based on the amount of the second security that can be bought; adjusts said equivalent amount of the second security based on adjustment criteria; calculates a selling price for the adjusted equivalent amount of the second security based on the spread limit; executes an initiating order to sell the adjusted equivalent amount of the second security at the selling price; and executes a covering order to purchase the amount of the first security.
In another exemplary embodiment, the pair trading engine executes a covering order to purchase the amount of the first security at the ask price of the first security.
In yet another exemplary embodiment, the pair trading engine rounds the initiating order to a round lot size.
In still yet another exemplary embodiment, the pair trading engine executes a first portion of one of the plurality of pair trade requests in a plurality of tranches.
In an exemplary embodiment, the one of the plurality of pair trade requests and the another of the plurality of pair trade requests include a first security and a second security, the one of the plurality of pair trade requests has a first spread limit and the another of the plurality of trade requests has a second spread limit and wherein the pair crossing network determines that a range of the first spread limit and the second spread limit overlaps with a market spread; sets a spread level; calculates prices for the first security and the second security that are within the market spread and based on the spread level; and matches the second portion of said one of the plurality of pair trade requests against another of the plurality of pair trade requests based on the calculated prices.
In another exemplary embodiment, the pair crossing network calculates a mean between the first spread limit and the second spread limit and sets the spread level as the mean if the mean is within the market spread.
In yet another exemplary embodiment, the pair crossing network identifies a spread amount that is closest to the mean and within the market spread and sets the spread level as the spread amount if the mean is not within the market spread.
In still yet another exemplary embodiment, the one of said plurality of pair trade requests and the another of the plurality of pair trade requests include a first security and a second security, the one of the plurality of pair trade requests has a first spread limit, a buy ratio and a sell ratio, the another of the plurality of trade requests has a second spread limit, a buy ratio and a sell ratio and wherein the pair crossing network determines that the buy ratio and the sell ratio associated with the one of the plurality of trade requests does not equal the buy ratio and the sell ratio of the another of the plurality of trade requests and that an overlap exists between range of the first spread limit and the second spread limit and a market spread; determines that market prices exist that are within the overlap; determines a mismatch amount in the second security based on a difference between the buy ratio and the sell ratio associated with the one of the plurality of trade requests and the buy ratio and the sell ratio of the another of the plurality of trade requests; calculates a cross amount for the first security and the second security; selects a crossing price for the first security and the second security that is within said overlap; determines that the mismatch amount is available at the crossing price for the second security; matches the second portion of the one of the plurality of pair trade requests against another of the plurality of pair trade requests based on the calculated prices; and executes a transaction for the mismatch amount of the second security at the crossing price for the second security.
In an exemplary embodiment, the pair crossing network determines that the mismatch amount is available in an external market at the crossing price for the second security.
In another exemplary embodiment, the pair crossing network determines that the mismatch amount is available in the order inventory at the crossing price for the second security.
In yet another exemplary embodiment, the one of said plurality of pair trade requests and the another of the plurality of pair trade requests indicate a number of spreads and wherein the pair crossing network matches a second portion of the one of the plurality of pair trade requests against another of the plurality of pair trade requests if the number of spreads is greater than a minimum number of spreads.
In still yet another exemplary embodiment, the plurality of pair trade requests include at least some pair trade requests indicating a preference for execution via said pair crossing network, and the system further includes a portfolio manager in communications with the pair crossing network, the portfolio manager receiving the plurality of pair trade requests and routing the at least some pair trade requests to the pair crossing network according to the preference.
In an exemplary embodiment, the system includes a pair trading engine for executing at least some of the plurality of pair trade requests, further includes a portfolio manager in communications with the pair trading engine and wherein the plurality of pair trade requests include at least some pair trade requests indicating a preference for execution via the pair trading engine, the portfolio manager receiving the plurality of pair trade requests and routing the at least some of the plurality of trade requests to the pair trading engine according to the preference.
Under the present invention, a system for fulfilling a pair trade request is provided, wherein the system receives a plurality of pair trade requests and includes a pair crossing network for matching at least one of the plurality of pair trade requests against another of the plurality of pair trade requests.
Accordingly, a method and a system are provided for trading pair securities.
The invention accordingly comprises the features of construction, combination of elements and arrangement of parts that will be exemplified in the following detailed disclosure, and the scope of the invention will be indicated in the claims. Other features and advantages of the invention will be apparent from the description, the drawings and the claims.
DESCRIPTION OF THE DRAWINGS.
For a fuller understanding of the invention, reference is made to the following description taken in conjunction with the accompanying drawings, in which:
FIG. 1 is a block diagram of a system for trading securities in pairs according to the present invention;
FIG. 2 is a flowchart of the steps a pair trading engine included in the system of FIG. 1 applies to fill a pair trade request;
FIG. 3 is a flowchart of the steps a pair crossing network included in the system of FIG. 1 applies to fill a pair trade request;
FIG. 4 is a flowchart of a process by which the pair crossing network of the system of FIG. 1 fills imperfectly matched orders; e.
FIG. 5 is a graph for identifying the market prices for two securities that meet the required spread limits.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS.
Referring now to FIG. 1 , there is shown a block diagram of a system 1 for trading securities in pairs according to the present invention. System 1 receives pair trade requests from clients operating client access devices 7 and attempts to fill the pair trade requests according to the parameters associated with the particular pair trade request. System 1 includes two different subsystems for filling pair trade requests: a pair trading engine 3 and a pair crossing network 5 . As will be described below, pair trading engine 3 receives a pair trade request and attempts to fill (in whole or in part) the trade request by executing the appropriate trades in an external market 13 (that may include, by way of non-limiting example, the New York Stock Exchange, the NASDAQ or any other financial market). Pair trading engine 3 may also fill (in whole or in part) a pair trade request by executing a transaction against order inventory 11 of (non-pair) trade requests controlled by the financial institution that is operating system 1 . In addition, pair trading engine may also fill (in whole or in part) a pair trade request by forwarding the trade request to pair crossing network 5 for matching with other pair trade requests.
Likewise, pair crossing network 5 receives a pair trade request and fulfills (in whole or in part) the request by matching it against another pair trade request received by pair crossing network 5 , by matching the request against inventory 11 controlled by the financial institution and/or by forwarding the trade request to pair trading engine 3 for execution in external markets 13 .
System 1 also includes a portfolio manager 9 (that may be, for example, a software program executing on a computer system) that receives the pair trade requests from client access device 7 and presents the trade request to either pair trading engine 3 , pair crossing network 5 or both, depending on the trade parameters set by the client. Also, the client may query portfolio manager 9 regarding the status of any pair trade request the client has presented to system 1 .
In operation, system 1 may fulfill a pair trade request either using pair trading engine 3 , or pair crossing network 5 , or a combination of the two. For example, a pair trade request received by system 1 may be completely filled by pair trading engine 3 as follows.
Assume a case where XYZ is taking over ABC and is offering 0.575 shares of XYZ for each ABC share and investor Arb wants to invest in the price difference between ABC stock and XYZ stock. To take advantage of the price difference, Arb wants to lock in the difference between the value offered (0.575*XYZ stock) and the value of ABC stock by buying ABC stock and selling XYZ stock subject to the condition that ABC−0.575 XYZ<=−$1.19 (i. e., Arb desires to capture a $1.19 difference between XYZ's takeover offer and ABC's share price).
In order to fill this pair trade, Arb presents a pair trade request to portfolio manager 9 (using client access device 7 ). The pair trade request typically includes a number of parameters that define the pair trade and that also may be used by portfolio manager 9 in determining how the pair trade request is to be filled. Arb typically indicates in the trade request the number of spreads the Arb desires to invest in and also provides a minimum and maximum share amount that he is willing to trade per tranche.
For example, Arb may indicate a desire to invest in 100,000 spreads and may only wish to trade the spread 3,000-8,000 shares at a time. Arb generally sets this tranche size range based on the liquidity and volatility of ABC stock and XYZ stock. Arb may set a larger minimum tranche size if ABC stock and XYZ stock are fairly liquid stocks because higher liquidity increases the likelihood that a larger tranche size will be executed. Arb may set a lower maximum tranche size if XYZ stock and ABC stock are volatile stocks so as to limit the “leg risk” associated with executing a pair trade.
Yet another pair trade parameter Arb provides is the spread limit (in the above case −1.19) which is the amount Arb desires to capture in the trade. Arb does not have to provide, however, the discrete prices at which trades for ABC and XYZ stock are to be executed as these prices are calculated by pair trading engine 3 (and/or pair crossing network 5 ), as will be described below.
Referring now to FIG. 2 , there is shown a flowchart describing the steps pair trading engine 3 applies to fill a pair trade request. The flowchart in FIG. 2 is based on the above example and the market data listed in Table 1 below.
Initially, in Step 201 , pair trading engine 3 determines whether the bid/bid prices or ask/ask prices of ABC and XYZ stock, respectively, meet the spread limit requirement of the particular pair trade request. In this case the bid/bid spread is −1.4375 ((122.50*0.575)−69) and the ask/ask spread is −1.1969 ((122.625*0.575)−69.3125) so that each spread is less than the spread limit of −1.19, as is required for this particular trade. Once it is determined that either the bid/bid spread or the ask/ask spread meets the spread limit, then in Step 202 , it is determined (as is indicated in Table 1) how much XYZ stock can be sold at the bid and how much ABC stock can be bought at the ask. In an exemplary embodiment, the client may specify whether the bid/bid spread, the ask/ask spread or either the bid/bid or the ask/ask spread must exceed the indicated spread limit for a transaction to proceed. If neither the bid/bid spread nor the ask/ask spread meets the spread limit, the process waits a period of time (for example 0.10 seconds) and returns to Step 201 to again test whether the bid/bid spread or the ask/ask spread meets the spread limit.
Next, in step 203 , an equivalent amount of stock that can be sent into the market (i. e., bought/sold in the market) is calculated for a spread based on the bid/bid price spread and/or the ask/ask price spread that meets the spread limit. In this example, if a maximum of 10,000 shares of XYZ stock can be sold into the market (i. e., the XYZ bid size) then, based on the ABC:XYZ ratio (of 1:0.575 in this case), a total of 17,391 (10,000/0.575) shares of ABC stock are to be bought in order to execute a balanced pair trade. Likewise, if a maximum of 1,500 shares of ABC stock can be bought in the market (i. e., the ABC ask size), then, based on the ABC:XYZ ratio (of 1:0.575 in this case), a total of 863 (1500×0.575) shares of XYZ stock are to be sold in order to execute a balanced pair trade.
Next, in Step 204 , the pair trade share amounts calculated in Step 203 are adjusted to conform to the wave maximum and minimum parameters (i. e., the maximum/minimum tranche size) included in the pair trade request as well as market round lot limits. In the above example, the amount of ABC shares to be bought that was calculated based on the XYZ bid size (i. e., 17,391) is first rounded to an even lot size (i. e., 17,400) and then reduced to the maximum tranche size of 8000. Also, the amount of XYZ shares to be offered that was calculated based on the ABC ask size (i. e., 863) is first rounded to an even lot size (i. e., 900) and then increased to 1,700 shares to meet the minimum tranche size of 3000 (3000×0.575=1777). In an exemplary embodiment the minimum and maximum tranche size is scaled by the particular ratio (for example, in the above case, the tranche sizes for XYZ stock is scaled by 0.575). In another embodiment, the maximum/minimum tranche size is used for each security in the pair trade request without scaling. In yet another exemplary embodiment, the pair trade request includes a separate maximum/minimum tranche for each security.
Once the share amounts for the pair trade are calculated, in Step 205 , the share prices that are needed to meet the spread limit of the pair trade request are calculated. For example, for a pair trade based on the bid/bid price spread, in order to meet the spread limit of $1.19 credit, the price at which ABC stock is to be bid should be no greater than $69.2475 ((122.50×0.575)−1.19) a share. Likewise, for a pair trade based on the ask/ask price spread, in order to meet the spread limit, the price at which XYZ stock is to be offered should be greater than or equal to $122.6130 ((69.3125+1.19)/0.575) a share.
Next, once the pair trade share amounts and share prices have been calculated, in Step 206 , pair trading engine 3 sends “initiating” orders to external markets 13 in order to fill the pair trade request. The initiating orders may include an initiating order for executing a pair trade based on the bid/bid spread (in this case a bid for 8,000 shares of ABC stock at $69.2475) and/or an initiating order for executing a pair trade based on the ask/ask spread (in this case an offer of 1,700 shares of XYZ stock at $122.6130).
Finally, as the initiating orders sent to external markets 13 in Step 207 get filled, pair trading engine 3 automatically sends into the market the covering side of the pair trade. So, for example, as the initiating order of buying 8,000 shares of ABC stock at $69.2475 gets filled, pair trading engine 3 sends an order to external markets 13 to sell 4,600 (8,000×0.575) shares of XYZ stock at $122.50.
In an exemplary embodiment, the client's pair trade request includes threshold amounts that indicate the amount of variance in stock price and/or share amount the client is willing to absorb. For example, if in the process of covering the initiating order the price of XYZ stock dips to $122.49 (in which case the spread limit of the pair trade would drop to 1.18), then pair trading engine 3 would still sell XYZ stock at the price of $122.49 if the $0.01 difference was within the threshold amount included in the pair trade request. Similarly, the pair trade request may include threshold amounts for any other pair trade parameter, including by way of non-limiting example, the number of spreads to be purchased and the tranche sizes. If, however, a particular threshold amount indicated by the client is exceeded for any given pair trade parameter, then pair trading engine 3 would attempt to cancel the initiating order and/or the covering order (that may be possible if the orders have not yet reached the market or have not yet been filled). In such a case, pair trading engine 3 would then repeat the above analysis for determining suitable initiating and cover orders.
To fill a pair trade request, pair trading engine 3 executes trades utilizing the method described above. Typically, pair trading engine 3 tranches a pair trade request and trades piece-meal in external markets 13 . In certain cases, however, it may be difficult to fill a trade request by executing several transactions in external markets 13 either because the pair trade request is for a very large number of spreads or includes stocks that are illiquid (in which cases pair trading engine 3 may be ineffective in filling the pair trade request). Also, in certain situations, a client wishing to remain anonymous may indicate in the pair trade request a preference that no orders be sent to external markets 13 . In these circumstances, portfolio manager 9 may route the particular pair trade request to pair crossing network 5 .
Referring now to FIG. 3 , there is shown a flowchart illustrating the steps pair crossing network 5 applies to fill a pair trade request. The flowchart in FIG. 3 is based on the above example and the market data listed in Table 2 below.
Continuing the previous example, assume the pair trade request issued by Arb for 100,000 spreads was half-filled by pair trading engine 3 . Also, assume that system 1 receives a pair trade request from Antiarb that indicates a desire to sell 30,000 shares of ABC and buy 17,200 shares (a ratio of 1:0.575) and also indicates a spread limit of 1.30 (i. e., (ABC−0.575XYZ)<=$1.30). In this case Arb and Antiarb's orders are complimentary in the primary order elements—securities, ratios and buy versus sell. Also, Antiarb is willing to pay $0.11 per spread more than Arb is demanding from the marketplace. Based on these parameters, there is an opportunity for Arb's and Antiarb's trade requests to be filled via pair crossing network 5 .
If Antiarb's pair trade request was marked for trading by pair trading engine 3 , then portfolio manager 9 sends Antiarb's order to pair trading engine 3 for execution. Pair trading engine 3 then sends the parameters of Antiarb's trade request, as well as all orders waiting for execution in pair trading engine 3 , to pair crossing network 5 . Pair crossing network 5 will recognize (as described above) that there is a crossing opportunity between Arb's order and Antiarb's order. In this case, pair crossing network 5 then directs pair trading engine 3 to suspend the execution of Antiarb's order in the amount that can be crossed by pair crossing network 5 (30,000 spreads in this case). In addition, pair trading engine 3 routes a cross amount of 30,000 spreads from Arb's order to pair crossing network 5 for crossing against Antiarb's order. At this point, the pair crossing network 5 crosses the Antiarb order against a portion of Arb's order, as follows.
Assume the prevailing market conditions at the time of the cross are as shown in Table 3. Furthermore, Table 3 indicates the XYZ Ratio-Adjusted Value for both the bid and ask prices based on the conversion ratio of 1:0.575. Based on the XYZ Ratio-Adjusted Values, a Bid:Ask Spread Range (i. e., the spread provided for a cross between the bid price of ABC stock and the XYZ Ratio-Adjusted ask price) of −1.3863 is calculated and an Ask:Bid Spread Range (i. e., the spread provided for a cross between the ask price of ABC stock and the XYZ Ratio-Adjusted bid price) of −1.05 is calculated.
To perform the cross, in Step 301 pair crossing network 5 first determines whether the range of spread limits associated with Arb's and Antiarb's trade requests (i. e., $1.30-$1.19) coincides with the range of the prevailing market spread ($1.3863-$1.05). In this example, the range of spread limits does coincide with the prevailing market spread because at least a portion of the spread limit range overlaps with a portion of the market spread. Thus, a cross can occur.
Next, in Step 302 , pair crossing network 5 calculates the mean of Arb's and Antiarb's spread order limit which is ($1.30+$1.19)/2=$1.245 and determines whether the mean is within the range of the market spread (i. e., $1.3863-$1.05). If it is, then in Step 303 , pair crossing network 5 calculates the prices at which to cross. The prices must be within the current markets for ABC stock and XYZ stock, and satisfy market uptick requirements (for short sales), and provide a spread that is equal to the spread level calculated above. For example, with the inside market for ABC stock at 70.00-70.25 and the inside market for XYZ stock at 124.00-124.15, a cross price of 70.11 for ABC stock and 124.096 for XYZ stock provides the spread of 1.2452 thereby meeting the requirement of both Arb's and Antiarb's trade request. Finally, in Step 304 , pair crossing network 5 crosses 30,000 shares of ABC stock at $70.11 (with Arb buying and Antiarb selling) and 17,200 shares of XYZ at $124.096 (with Arb selling and Antiarb buying).
If it is determined in Step 302 that the mean of Arb's and Antiarb's spread order limits does not fall within the range of the market spread, then in Step 305 , the spread closest to the mean of the two spread limits that is also within the market spread is calculated. For example, if the market spread is $1.3863-$1.28, then the mean of the two spread limits ($1.245) is not within the market spread. In such a case, $1.28 is selected as the spread level that is closest to the mean and within the market spread. In an exemplary embodiment, the spread level at which Arb and Antiarb cross can be determined in any other suitable manner as long as the spread level is within the market spread and within the range of spread limits indicated in the pair trade requests.
Once the spread level is determined, the method proceeds to Step 303 in which pair crossing network 5 calculates prices to cross at that are within the current markets for ABC stock and XYZ stock and that meet the calculated spread level. In the case where the calculated spread level is $1.28, the cross will occur at a price of $70.08 for ABC stock and $124.1043 for XYZ stock. Finally, the method proceeds to Step 304 in which pair crossing network 5 performs the cross between Arb and Antiarb.
Once a pair trade request is filled (or partially filled), the transaction details are reported to portfolio manager 9 and made available to the client operating client access device 7 .
In the previous example, pair crossing network 5 crosses orders in which both Arb and Antiarb desire to trade the same pair of securities in the same ratio. In an exemplary embodiment, pair crossing network 5 executes a cross between two pair trade requests that are not perfectly matched.
For example, assume that pair crossing network 5 receives the pair trade requests as shown in Table 4. Note that these two pair trade requests are imperfectly matched because each trade request uses a different ratio between ABC and XYZ stock.
Also, assume the market in ABC and XYZ stocks at the time the pair trade requests are received by pair crossing network 5 is as described in Table 5 below.
Referring now to FIG. 4 , there is shown a flowchart illustrating a process by which pair crossing network 5 fills these imperfectly matched order. First, in Step 401 , pair crossing network 5 determines whether Arb's buy security equals Antiarb's sell security and whether Arb's sell security equals Antiarb's buy security. If both conditions are not met, then a cross between the two orders cannot occur. If the two conditions are met, then in Step 402 it is determined whether Arb's buy ratio equals Antiarb's sell ratio and whether Arb's sell ratio equals Antiarb's buy ratio. If these ratios are the same, then pair crossing network 5 proceeds to cross the two orders as described in the example above. Note that for a cross to occur at this stage does not require the ratios themselves to match but rather that the ratios of the ratios match (for e. g., a ratio of 2:3 matches a ratio of 0.667:1).
If, however, the two ratios are not equal (as in this case where Arb's sell ratio does not equal Antiarb's buy ratio), then in Step 403 pair crossing network determines whether there is an overlap between Arb's and Antiarb's spread limit that also falls within the bid/ask market for ABC and XYZ stock. To make such a determination, pair crossing network 5 calculates whether there are market prices for both ABC and XYZ stock that satisfy the following inequalities:
Where L 1 is Arb's spread limit of $1.19 credit, L 2 is Antiarb's spread limit of $4.40 debit, RatioA is Arb's buy ratio of 1:1, RatioB is Arb's sell ratio of 1:0.575, RatioC is Antiarb's sell ratio of 1:1 and RatioD is Antiarb's buy ratio of 1:0.6.
Referring now to FIG. 5 , there is shown a graph 51 that depicts market prices for ABC and XYZ stock that meet the spread limits of Arb and Antiarb. In graph 51 , the x-axis represents the prices for XYZ stock while the y-axis represents the prices for ABC stock. Graph 51 includes a shaded area 53 that is the universe of market prices for ABC and XYZ stock that could satisfy the spread trade involving those stocks. Also included in graph 53 is a spread limit line L 1 (inequality (1), above) that represents the spread limit associated with Arb and a spread limit line L 2 (inequality (2), above) that represents the spread limit associated with Antiarb. Thus, the solution set of market prices that satisfies inequalities (1) and (2) is the portion of dark shared area 53 that falls between spread limit line L 1 and spread limit line L 2 . In this example, a cross at a share price for ABC of $70.14 and a share price of $124.15 for XYZ stock meets the investor's spread limits and falls within the market prices for ABC and XYZ stock.
If it is determined that no share prices for both ABC and XYZ stock satisfy Arb's and Antiarb's spread limits, then no cross can occur. If such share prices do exist, then in Step 404 , it is determined which of the investors desires to transact in fewer shares of ABC stock and a mismatch in share amounts caused by the differing ratios is determined. In our example, Antiarb desires to sell fewer ABC shares than Arb desires to buy (30,000 vs. 50,000). Then, in Step 405 , pair crossing network 5 determines the number of XYZ shares that can be crossed between Arb and Antiarb based on the maximum amount of ABC shares that can be crossed (30,000 in this example). Based on the Antiarb ABC order quantity of 30,000 shares, the maximum number of XYZ shares that Arb will cross with Antiarb is:
30 , 000 * Arb ⁢ ⁢ XYZ ⁢ ⁢ Ratio / Arb ⁢ ⁢ ABC ⁢ ⁢ Ratio = 30 , 000 * 0.575 / 1 = 17 , 300 ⁢ ( 17 , 250 ⁢ ⁢ rounded ⁢ ⁢ to ⁢ ⁢ an ⁢ ⁢ even ⁢ ⁢ lotsize ) .
While the maximum quantity of XYZ shares that Arb will cross is 17,300, Antiarb's trade request indicates a desire to cross 18,000 shares. To overcome this imbalance, in Step 406 , pair crossing network 5 is in communications with external markets 13 for determining whether the excess 700 XYZ shares needed to satisfy Antiarb's trade request can be transacted for in external markets 13 . In an exemplary embodiment, pair crossing network 5 makes this determination by issuing a query to pair trading engine 3 as to whether 700 shares of XYZ stock can be bought in external markets 13 . Because, as indicated in Table 5, 3,000 shares of XYZ stock are offered at $124.15, pair trading engine 3 responds to pair crossing network 5 that the 700 shares needed to balance the cross between Arb and Antiarb are available from external markets 13 at $124.15.
Next, in Step 407 , pair crossing network calculates the cross prices that are necessary such that Arb and Antiarb achieve their respective spread limits while also incorporating the excess 700 shares of XYZ stock that must be purchased from external markets 13 at $124.15 to satisfy Antiarb's trade request. An example of such cross prices that meet these criteria is a price of $70.14 for ABC stock and a price of $124.15 for XYZ stock.
Once the cross prices are calculated, in Step 408 , pair crossing network 5 crosses 30,000 shares of ABC stock and 17,300 shares of XYZ stock between Arb and Antiarb and also buys 700 shares of XYZ stock at $124.15 in external markets 13 on behalf of Antiarb. Thus, both Arb and Antiarb's pair trade requests are satisfied.
Alternatively, the entire 18,000 shares of XYZ stock may be crossed thereby fully satisfying Antiarb's trade request. In such a case, the ratio mismatch is addressed by Arb purchasing an additional 1200 (700/0.575 rounded to a lotsize) shares of ABC stock from external market 13 or from firm inventory 11 .
Once the trade is completed, the details of the transaction are provided to portfolio manager 9 to report the transaction details to the investors.
In an exemplary embodiment, a pair order (or portion thereof) may be filled against an internal inventory 11 of trade requests maintained by the financial institution operating system 1 . For example, in the previous example in which an excess of 700 shares of XYZ stock needs to be purchased in order for a match (i. e., cross) between Arb and Antiarb's trade requests to occur, instead of determining whether the 700 shares are available in external markets 3 , pair crossing network 5 examines firm inventory 11 to determine whether the shares are available at the required price. Likewise, in cases where pair trading engine 3 desires to execute a pair trade based on orders to be sent to external markets 13 , pair trading engine 3 may first determine whether the order can be filled, in whole or in part, using trade requests pending in firm inventory 11 . Generally, the advantages of filling an order using pending trade requests in firm inventory 11 is that execution is faster, transaction costs are lower and leg risk is minimized.
In another exemplary embodiment, a client's pair trade request may also include a minimum number of spreads that can be traded in pair crossing network 5 . Also, pair crossing network 5 may be designed to require a minimum share amount for a cross to occur. A minimum number of spreads that can be traded may be provided in order to reduce the distractions and booking costs associated with numerous smaller trades that may exceed the benefits of a de minimis fill.
In another exemplary embodiment, portfolio manager 9 publishes the “inside cross market” for any pair that a client has selected for crossing in pair crossing network 5 . In still another exemplary embodiment, the client has the option for each pair trade selected for crossing in pair crossing network 5 to designate that the order should be reflected in the published inside cross market. This inside cross market consists of the tightest spread bid and offer (and corresponding bid size and offer size) from all client pair orders pending in pair crossing network 5 . In this way, a client can assess the likelihood and timing of a pair trade request being filled by pair crossing network 5 . Also, by publishing the client's spread interest, others seeking liquidity can trade at the client's level.
In an exemplary embodiment, the client can designate each pair order designated for pair trading engine 3 and/or pair crossing network 5 for “Broker Negotiation.” If “Broker Negotiation” is designated, the client's broker-dealer sales representative is notified of the client's spread order thereby prompting the broker-dealer to solicit a complementary, agency order from another client. The client may also designate each pair order for “Broker Facilitation” in which case the client allows the broker-dealer to act principally to fill the client's order.
In summary, the advantages to a client of using pair trading engine 3 is that pair trading engine 3 allows the client to trade a spread order while limiting leg risk or the risk of missing a targeted spread level. This is accomplished by breaking the total order into tranches of sizes proportionate to the market, subject to user minimums and maximums, that can be traded in external markets 13 or against firm inventory 11 . Orders executed via pair trading engine 3 , however, are typically of a lower traded volume because trading is constrained to the liquidity available in the market. In contrast, trades executed via pair crossing network 5 are not constrained by market liquidity and do not have to be tranched to minimize leg risk. In particular, the benefits of filling a pair trade request via pair crossing network 5 are as follows:
Elimination of Leg Risk. Pair crossing network 5 potentially provides a deeper well of liquidity because the trades are brokered, as a spread, directly between spread investors via a central clearing facility. Moreover, the introduction and use of a pair trading facility eliminates the ‘leg’ risk described above without a sacrifice of liquidity. Large Transactions Only. Certain large investors may prefer to use pair crossing network 5 rather than pair trading engine 3 to avoid having a trade request broken up into numerous small executions. For example, sudden, brief moves in one of the two stocks included in the pair trade request may cause pair trading engine 3 to issue numerous small executions to fill the request. While a small investor may welcome capturing these small opportunities, a large investor may find such small executions to be more of a nuisance than a service. Price Setting versus Price Taking. Large investors seeking liquidity may prefer to ‘set’ their price via the pair crossing network 5 . Also, other spread investors looking for liquidity can use pair crossing network 5 to monitor and trade with the large investor at the large investor's level. While client orders directed to pair trading engine 3 can designate a spread limit, such orders are essentially “price-takers”—as the market reaches the desired level, the orders are executed. Moreover, the pair trading engine tranching mechanism creates relatively small orders, allowing institutional flows to move the individual stocks. As a result, the small, tranched orders generated by pair trading engine 3 can become ‘overpowered’ by single-name institutional flows. In addition, orders designated solely for pair trading engine 3 , and not for pair crossing network 5 , are not published to a central quote facility (such as by portfolio manager 9 ) thereby preventing other spread traders from knowing the size and limit of a pair trading engine order. Illiquid Stocks vs Liquid Stocks. Spreads that include one or two illiquid stocks are difficult to fill using pair trading engine 3 alone. Because illiquid stocks often demonstrate small bid and ask sizes and wide bid-ask spreads, pair trading engine 3 will typically only issue market orders having small quantities (subject to user minimums and maximums) that presents the client with greater leg risk from mid-trade changes in the bid-ask prices. In contrast, orders routed to price crossing network 5 are not confined by liquidity in the market place thereby allowing large crosses between spread traders in illiquid spreads.
Accordingly, a system and method for trading pair securities is provided in which the client receives the benefits of having a pair order filled by either pair trading engine 3 , pair crossing network 5 or a combination of both.
A number of embodiments of the present invention have been described. Nevertheless, it will be understood that various modifications may be made without departing from the spirit and scope of the invention. Based on the above description, it will be obvious to one of ordinary skill to implement the system and methods of the present invention in one or more computer programs that are executable on a programmable system including at least one programmable processor coupled to receive data and instructions from, and to transmit data and instructions to, a data storage system, at least one input device, and at least one output device. Each computer program may be implemented in a high-level procedural or object-oriented programming language, or in assembly or machine language if desired; and in any case, the language may be a compiled or interpreted language. Suitable processors include, by way of example, both general and special purpose microprocessors. Furthermore, alternate embodiments of the invention that implement the system in hardware, firmware or a combination of both hardware and software, as well as distributing modules and/or data in a different fashion will be apparent to those skilled in the art and are also within the scope of the invention. In addition, it will be obvious to one of ordinary skill to use a conventional database management system such as, by way of non-limiting example, Sybase, Oracle and DB2, as a platform for implementing the present invention. Also, network access devices can comprise a personal computer executing an operating system such as Microsoft Windows™, Unix™, or Apple Mac OS™, as well as software applications, such as a JAVA program or a web browser. Access devices can also be a terminal device, a palm-type computer, mobile WEB access device or other device that can adhere to a point-to-point or network communication protocol such as the Internet protocol. Computers and network access devices can include a processor, RAM and/or ROM memory, a display capability, an input device and hard disk or other relatively permanent storage. Accordingly, other embodiments are within the scope of the following claims.
It will thus be seen that the objects set forth above, among those made apparent from the preceding description, are efficiently attained and, since certain changes may be made in carrying out the above process, in a described product, and in the construction set forth without departing from the spirit and scope of the invention, it is intended that all matter contained in the above description shown in the accompanying drawing shall be interpreted as illustrative and not in a limiting sense.
It is also to be understood that the following claims are intended to cover all of the generic and specific features of the invention herein described, and all statements of the scope of the invention, which, as a matter of language, might be said to fall therebetween.

A Basic Introduction to Pairs Trading.
Pairs trading or Statistical Arbitrage is a stock trading strategy that attempts to be market neutral and capture the spread between two correlated stocks as they return to the mean price. It is known by some as “statistical arbitrage”, but “pairs trading” is the more common name used to refer to this technique.
Simply stated, it is the buying and simultaneous selling of two stocks that follow each other when they diverge from the normal pattern; in the expectation that the normal pattern will soon resume. In other words, traders find two stocks that tend to move together. The trader would buy Stock A and sell Stock B short.
Clique aqui para saber como utilizar as Bandas Bollinger com uma abordagem quantificada e estruturada para aumentar suas margens de negociação e garantir maiores ganhos com o Trading com Bollinger Bands® & # 8211; Um guia quantificado.
Pair trading is also done with options, futures, and baskets of stocks but that is fodder for future articles. This article will cover the basics of pairs trading by showing you a simple 4-step method for pairs trading. I’ll also provide examples and point you in the right direction for more information on this highly effective stock trading tactic often used by trading professionals.
Here is the simple 4 step method to get started in pair trading.
Step 1. Choose the Stock Pair.
This may sound like the most difficult part of the process, but it’s actually quite simple in its most raw form.
There are numerous complicated methods for choosing the pair of stocks, but it all boils down to finding two stocks that are correlated in movement. Start out by looking for stocks that make sense to be similar.
Here are several examples:
These are just a tiny few of the stocks that can be used in pairs trading because of their correlation in movement.
Step 2. Visually Confirm Correlation Using Charts.
Eyeballing price charts is a very basic way to determine correlation of pairs. Look at charts of stocks that you think should be correlated to find several that truly move together. There are many more complex ways to do this, but this way is the most simple.
Step 3. Create a Price Ratio Chart.
This is another complicated sounding, but actually simple, procedure. Most charting platforms can do this for you automatically.
A Price Ratio Chart It is a chart of both stocks plotted together. It is calculated by dividing one stock price into the other. These are normally line charts and measure deviation from the mean or average spread between the two stocks in the pair.
Step 4. Buy One Stock. Sell One Stock Short.
When the price ratio line moves to its first or second deviation from the mean it’s time to enter the trade. You want to go long the lagging stock and short the over performer.
Your profit is anywhere in the spread as it comes back to the mean. When you start out, match dollar value in each stock and not share number, this keeps things equal in the moves. There are many ways to size the trades, this is just the most rudimentary method.
This is pair trading in its most simple form. It’s not a fool proof method. Os comerciantes podem e perdem dinheiro. However pairs trading is a proven method for consistent profits. Most importantly, remember to utilize stops when pair trading. It is possible that both sides of the trade can lose, so know how much you are willing to lose prior to executing your first pairs trade.
Dave Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.
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OS RESULTADOS DE DESEMPENHO HIPOTÉTICOS OU SIMULADOS TÊM CERTAS LIMITAÇÕES INERENTES. DESEJO UM REGISTRO DE DESEMPENHO REAL, OS RESULTADOS SIMULADOS NÃO REPRESENTAM NEGÓCIO REAL E NÃO PODEM SER IMPACTOS POR CORREÇÃO E OUTRAS TAXAS DE SLIPPAGE. TAMBÉM, DESDE QUE OS NEGÓCIOS NÃO SEJAM REALMENTE EXECUTOS, OS RESULTADOS PODEM TENER SOB OU COMENTÁRIOS COMPLEMENTARES PARA O IMPACTO, SE HAVER, DE CERTOS FATORES DE MERCADO, TAL COMO FALTA DE LIQUIDEZ. PROGRAMAS DE NEGOCIAÇÃO SIMULADOS EM GERAL SÃO TAMBÉM SUJEITOS AO FATO QUE ESTÃO DESIGNADOS COM O BENEFÍCIO DE HINDSIGHT. NENHUMA REPRESENTAÇÃO ESTÁ FAZENDO QUE QUALQUER CONTA VÁ OU SEJA PROBABILITÁVEL PARA ALCANÇAR LUCROS OU PERDAS SIMILARES ÀOS MOSTRADOS.