The client is an early-stage company engaged in derivatives trading. The CEO and founder of the organization felt the need for a desktop application that can be used by both the users and service providers to match the trading requirements, of both the demand and supply sides. They approached Experion with this requirement.

Business challenges

Derivatives trading or one of its categories, options trading, helps large business corporations manage /spread out risks concerning buying or selling of assets. Buying/selling assets via derivatives has the weakness of not necessarily allowing an increase in profits due to certain uncontrolled parameters. In fact, derivatives trading can even be counterproductive in cases where market parameters have not really been to your advantage at the time when they were set. An example is the risks caused due to volatility in asset values.

Below are some of the risks associated with derivatives trading. Both large corporations as well as individual investors can find themselves facing such unhappy situations.

Volatility

The underlying asset on which the contract is based can change its market value. A higher volatility may result in biased profits in the favor of one party of the contract. One party can end up losing profits because of the volatile nature of asset value.

Market risk: Economic factors such as fiscal and current account deficits and international markets have a huge impact on trading instrument prices. A thorough research/consultation is recommended before trading/investing in derivatives.

Considering the risks mentioned, it would be beneficial to buy and sell derivatives when the requirements of both users and sellers match at a point. However, this type of requirements matching could be easier to speak about than execute, as it requires considerable research, insight and analysis, which is where technology can help to a great extent.

Desktop application for matching trading requirements

The software is designed to match two types of trades. For example, if one customer wants to buy 100,000 shares of IBM, and buy 1000 jan 100 puts, sell 1000 jan 100 calls and pay .11, and another customer wants to do the opposite and collect .11, the client server will match the two trades and alert an internal trader to the match. This match will be manually sent to an exchange by the internal trader to be traded. This trade will be considered “executed” once it is done. The client will have no direct link to any marketplace.

The software to match trades was designed to display quotations and order info in real time. The maximum allowable latency from the time an order is entered by a customer to the time it is visible to all terminals is 0.25 seconds. This is an aggressive goal as average ping times to servers in the NYC area are in the range of 50-100ms.

Also, while data is traveling over the open internet we need to accomplish three things:

1. Absolute data security: The strongest possible encryption methods were used to ensure data safety and security.
2. Zero data corruption: Since large sums of money will be transacted based on data entered, data sent/received has to be accurate.
3. Unauthorized data access: A foolproof manner is used to ensure that no unauthorized person/entity can decompile the software to access information from the server.

Key Features of the Application

  • For equity finance trades using listed options to match buyers and sellers of stock financing.
  • Ensures real-time access to current quotations/order information as inevitable factors of listed options in equity trade finance

The functional points will include the below portals,

1. Admin Portal
2. Customer Terminal
3. Traders Terminal

Business Benefits

  • Avoiding uncertainties/ risks associated with derivatives trading
  • Matching trading requirements of buyer/seller effectively
  • Ensuring data security and accuracy for best results
  • Real time access to current quotations and order information
  • Intelligent trading facilitated by technological insight, research, action & analysis