Model-based selection of trade execution strategies
View Patent ↗Effective selection of trade execution strategies using a multi-dimensional model is disclosed. A relationship exists between order difficulty and execution strategy. Execution strategy depends on order difficulty, and order difficulty has many dimensions. The multi-dimensional model classifies trade orders according to the dimensions, and then maps these classified trade orders into suitable execution strategies. For each trade order, one or more appropriate strategies are automatically selected and presented to the trader to assist the trader in making an informed and timely decision.
1. A processor-implemented method, comprising:
providing a multi-dimensional model having at least three dimensions, each dimension pertaining to order difficulty of a trade order;
mapping, by a processor, the multi-dimensional model into multiple execution strategies such that different execution strategies are associated with different levels of order difficulty;
assessing, by the processor, the order difficulty of a trade order;
selecting, based on the assessed order difficulty, at least one of the execution strategies to execute the trade order; and
evaluating, by the processor, effectiveness of the multi-dimensional model in mapping trades into the execution strategies.
2. A method as recited in claim 1 , further comprising making modifications to the multi-dimensional model to improve the effectiveness.
3. A method as recited in claim 1 , wherein the dimensions comprise order size, liquidity, and trade urgency.
4. A method as recited in claim 1 , wherein one of the dimensions comprises trade urgency, and said assessing the order difficulty comprises determining the trade urgency of the trades.
5. A method as recited in claim 4 , wherein said determining the trade urgency comprises evaluating trading alpha.
6. A method as recited in claim 4 , wherein said determining the trade urgency comprises evaluating volatility.
7. A method as recited in claim 4 , wherein said determining the trade urgency comprises evaluating execution risk.
8. One or more computer-readable media storing computer-executable instructions that, when executed on one or more processing units, perform the method recited in claim 1 .
9. A computer-implemented method, comprising:
receiving multiple trade orders to trade equities;
providing a multi-dimensional model having at least three dimensions, wherein the dimensions comprise liquidity, order size, and trade urgency;
automatically selecting, by a computer, execution strategies for the trade orders using the multi-dimensional model that maps trade orders to execution strategies;
executing the trade orders according to the selected execution strategies; and
evaluating effectiveness of the multi-dimensional model in mapping trade orders to the execution strategies.
10. A computer-implemented method as recited in claim 9 , wherein the liquidity is quantified according to one of (1) market capitalization, (2) market exchange, (3) timing, and (4) occurrence of irregular events.
11. A computer-implemented method as recited in claim 9 , wherein the order size is quantified according to one of (1) number of shares, (2) function of volume traded, (3) market capitalization, (4) sector type, and (5) market exchange.
12. A computer-implemented method as recited in claim 9 , wherein the trade urgency is quantified according to one of (1) trading alpha, (2) volatility, and (3) execution risk.
13. A computer-implemented method as recited in claim 9 , wherein the trade urgency is quantified according to trading alpha, further comprising:
characterizing trading alpha ranges over a predetermined period of time; and
evaluating the trading alpha of the trade orders.
14. A computer-implemented method as recited in claim 9 , further comprising presenting the execution strategies thus selected for consideration by a trader.
15. One or more computer-readable media storing computer-executable instructions that, when executed on one or more processing units, perform the computer-implemented method recited in claim 9 .
16. A processor-implemented method, comprising:
receiving a trade order for execution according to a particular strategy, the strategy being selected, by a processor, using a multi-dimensional model that maps trade orders to execution strategies according to at least three dimensions of order difficulty;
executing, by a processor, the trade order according to the particular strategy; and
evaluating effectiveness of the multi-dimensional model in mapping trade orders to the execution strategies.
17. A method as recited in claim 16 , wherein the dimensions comprise order size, liquidity, and trade urgency.
18. A system comprising:
a processor; and
a memory disposed in communication with the processor and storing processor-issuable instructions that:
provides means for receiving trade orders to trade equities;
provides a multi-dimensional model having at least three dimensions, each dimension pertaining to order difficulty of a trade order;
maps the multi-dimensional model into multiple execution strategies such that different execution strategies are associated with different levels of order difficulty;
assesses the order difficulty of a trade order;
selects, based on the assessed order difficulty, at least one of the execution strategies to execute the trade order; and
evaluates effectiveness of selecting, based on the assessed order difficulty, at least one of the execution strategies.
19. A system as recited in claim 18 , wherein the dimensions comprise the trade urgency, liquidity of the equities, and order size.
20. A system as recited in claim 18 , further comprising present the execution strategies for consideration by a trader.