System and method for block trading
A method and system for trading financial instruments which reduces the leakage of trading interest when buyers and sellers of financial instruments desire to trade. Accordingly, in one embodiment, a trading system allows traders to speculate on the hidden liquidity in the market by offering liquidity at fixed prices which are inferior to the NBBO (National Best Bid Offer) in exchange for rights to sweep the market for better priced quotes. In another embodiment of the invention, a liquidity provider can set their own fee. This fee is charged to the liquidity taker if their quote is executed. This fee compensates traders for the risk of taking a position in a financial instrument. In another embodiment of the invention, dummy orders are used to reduce trading interest leakage when limit orders are placed into order books. In another embodiment of the invention, a trading system will only match liquidity taking orders with single liquidity providing orders of equal or greater in size.
1. A computer-implemented method for trading above a market, comprising:
receiving by a computer a sell order by a first party to trade a financial instrument at a price above the market, the market to contain at least one sell order of a third party that is priced at the market;
receiving by the computer a buy order by a second party to trade a financial instrument at a price above the market and at a particular price equal or greater than the price of the first party's sell order; and
completing by the computer a trade between the first party and the second party at a price above the market and generating at least one buy order on behalf of the first party to trade the financial instrument with the third party that has a sell order that is smaller than the first party's sell order, and which is priced at the market.
2. A computer-implemented method for trading below a market, comprising:
receiving by a computer a buy order by a first party to trade a financial instrument at a price below the market, the market to contain at least one buy order of a third party that is priced at the market;
receiving by the computer a sell order by a second party at a price below the market and at a particular price equal or less than the price of the first party's buy order; and
completing by the computer a trade between the first party and the second party at a price below the market and generating at least one sell order on behalf of the first party to trade the financial instrument with the third party that has a buy order that is smaller than the first party's buy order, and which is priced at the market.