Saturday, December 17, 2011

World Order Trader Preview

Independent recently introduced the concept of the World Order Composite Index, which inspired work to establish an on-line, international World Order Exchange™ (WOE). WOE is now open for beta testing. No funds are required to participate in testing, only an internet connection. The platform for on-line traders anywhere in the world is previewed with screen shots in Figs. 1 and 2. The free World Order Trader™ (WOT) platform may be downloaded here. WOT details and implementation plans are presented.
Fig 1: World Order Trader (left)

The WOT interface to WOE was designed to be user friendly and to allow market participants to acquire trading skills without any financial risk, with two objectives. First, the system requires testing. Second, price action may provide a sentiment reading regarding how well the members of the Universal House of Justice (UHJ), National Spiritual Assemblies (NSAs) and Local Spiritual Assemblies (LSAs) are perceived to be doing their jobs, in the WOH, WON and WOL indexes respectively.

With successful testing and sufficient interest, traders may open funded accounts for profit (or loss) and WOE seats for market makers may also be purchased and traded.
Fig 2: World Order Trader (right)

Main Menu
System in the main menu (Fig. 1, upper left) provides a Log On option. After the free WOT platform is downloaded and run, current quotes for WOE instruments are displayed.

The first trader task is to Log On. After entering a user name, which may be an alias, and password, WOE automatically opens a trader acct and funds it with $1,000,000.00 dollars for practice trading during the testing period.

After Log On, the trader's account number is displayed along with other information described below.

Prices and Volume
WOE instruments are the World Order Composite Index (WOC), World Order House (WOH), World Order Nationals (WON) and World Order Locals (WOL). The WOC index is the average of its three components: WOH, WON and WOL.

If the WOE market is open, quotes and current bid/ask prices are updated. Thus, the public can monitor trends in trader perceptions of performance by the UHJ, NSAs and LSAs. Rising prices may indicate increased confidence or its expectation; decreasing prices may indicate perceived unsatisfactory performance or its expectation in the future.

For example, if the WOC index is bought, to close the trade, the shares must be sold at some future time. Hence, buying may represent expectation that confidence or performance will increase, so that the shares may be sold at a profit in the future. In contrast, the WOC index may be sold with the expectation that it can be bought at a lower price later for a profit.

In Fig. 1, Last shows the price of the last trade, with background highlight for up ticks (green) and down ticks (red). Change and Percent change show the difference of the Last price and the closing price on the previous trading day. For the current trading day, the highest (High) and lowest (Low) trade prices are listed. New highs are background highlighted with green and new lows, with red (e.g., WOH low in Fig. 1).

The Bid price is the highest offer to buy 100 or more shares. Likewise, the Ask price is the lowest price of existing offers to sell 100 or more shares. Open is the price of the first trade in a daily session. Volume (Fig. 2) is the number of shares changing hands during the day's trading session.

Order Form
The Buy and Sell buttons place WOE trading orders, if the user has logged on and therefore has an account. One may edit the number of shares and the price. The symbol (WOC, WOH, WON or WOL) is selected with a combobox (showing WOC in Fig.1). Another combobox provides selection of trade type -- Market, Limit or Stop.

Market orders are executed immediately by WOE market makers at the current Bid/Ask prices. That is, a Buy Market order results in a trade at the Ask price and a Sell Market order results in a trade at the current Bid price. Typically, Bid/Ask prices are changing continuously during a trading session. There is no requirement to edit price before placing a market order.

A Limit order may be executed only at the price specified or better. For example, a Buy Limit order will not be executed and remain as an Open Order until a matching Ask price is at or below the Limit order price. Similarly, Limit Sell orders remain as Open Orders until a Bid price is at or above the order's price. In each case, the Limit order may result in a trade at the specified price or at times at a more favorable price (higher for Sell orders or lower for Buy orders).

A Stop order may be placed to prevent excessive losses for existing positions or to initiate new positions if price moves to the Stop order price. For example, Fig. 2 shows a long WOH position (100 Shares) with average purchase price 99.83. A Sell Stop order at 98.40 would result in liquidating part or all of this position if price action fell decisively below the current daily low price (98.48 in Fig. 1). A Buy Stop order may be similarly used in an inverse fashion to limit losses on previous sale positions, if prices rise excessively.

Other order types may include MOC (Market on Close) used by many traders.

Orders may be placed to be effective only for the current trading session (Day in Fig. 1) or GTC (good 'til cancel). Also, traders may select AON or not for an order. AON (all or none) means that the trade will be executed only if a matching order exists for the same or greater number of shares. For smaller orders, market makers will usually take the other side of the trade. AON for very large number of shares may delay a trade until a matching order of the specified size exists. For example, for buyers and sellers "in size", it may be preferable for traders to build positions in smaller steps.

Open Orders and Today's Trades
The Open Orders box (Fig. 1) lists orders that have not yet resulted in a trade. An open order may be cancelled by right-clicking it. WOE will cancel the order if it has not been already executed before receipt of the cancel request.

The Executions box lists trades completed in the current session. This provides an account statement, which is saved to disk in statement files which may be viewed providing a complete off-line record of transactions.

Long and Short Positions
Current long and short positions and their current market unrealized profit or loss are continuously updated. Fig. 2 shows a long position of 100 Shares of WOH at the average price of 99.83. There are two short positions in WOC and WON indicated by the minus sign for number of Shares. If one sells more Shares than one owns, a naked short position is established. Short positions are partially or fully "covered" by buying shares, resulting in a realized profit or loss.

The $Profit column shows the current unrealized profit or loss of a position with positive values being unrealized profit and negative values being unrealized loss. These values are expressed in dollars ($Profit) and percent (%Profit).

Account Status and Buying Power
The Account box (Fig. 2) displays current account equity (EQ) and unrealized profit/loss (MV). As described above, new accounts with no trades will show one million dollars equity, which is equivalent to cash balance.

If the account has existing market positions (Shares not equal to zero), current unrealized profit/loss is the sum of $Profit column. Hence, account equity is the sum of cash, unrealized profit/loss of present positions and cash collateral described below. Current unrealized profit/loss and collateral to back current positions depend on current prices. Therefore, equity follows market activity if positions in the market are not zero.

When prices move to favor current positions, unrealized profit increases, and vice versa. Fewer and smaller positions relate to reduced risk of loss. By definition, available cash is account equity minus required collateral.

WOE computes required collateral for each position, which equals the number of shares times the Last price, for both long and short positions. This cash collateral backs existing positions, so WOE can perform as a clearing house to guarantee payment of profit to trader accounts.

Given the dependence on price, collateral amount may change during a WOE session as prices may change. The main significance is to determine buying power (BP in Fig. 1 status bar), defined as total equity minus collateral amount. WOE accepts new orders which would create new or larger positions only if BP is greater than the cash collateral amount of the order submitted (by clicking the Buy or Sell buttons).

To summarize:
Equity = Cash + PL + Margin
Margin = sum of abs(Shares) x Last price
BP = Equity - Margin

where PL is unrealized profit/loss, Margin is required collateral and BP is buying power.

News Headlines
To supplement official news sources related to world order issues from Baha'i and other news agencies, News Headlines provides a means for each trader to report relevant news and commentary. In the edit box below, text lines may be entered; the Send button transmits the text to WOE, which then distributes it to all on-line traders. Hence, participants might become better informed of potentially market-moving news.

Each text line is tagged with the source account number (19 and 217 in Fig. 1). Hence, the credibility of each news source may be evaluated by traders.

Probably some filtering or screening of these text postings of news or commentary will be needed. For example, some traders (account numbers) may develop a reputation as reliable news sources while, alas, others might have this access to News Headlines disabled if necessary to preserve the integrity of distributed information.

Platform Status
The status bar displays general platform status including Market Open or Closed, buying power (BP), bytes received (Rx) and transmitted (Tx) and UTC time. WOE contemplates that its market might be open 20 to 22 hours of each day to facilitate participation by traders in all time zones.

WOE Executive Committee
WOE may be contacted by text-only email to keenej_at_cwdom.dm. Prior to public release of World Order Trader, one may join the very first beta testers by emailing the author, thereby receiving the earliest beta testing versions as attachments to return email.

Summary and Conclusions
WOT and WOE software beta testing may begin shortly, with announcement that the WOT platform may be freely downloaded. If there is sufficient interest and testing success, WOE functionality both as a poll of sentiment about world order issues and as a financial exchange might develop further in steps. One option would be to charge a small fee per trade to provide income to WOE to defray its cost to provide its on-line exchange service. If the fee was very small (pennies per trade), almost everybody could afford to trade and the value of index price trends as an indicator that might favorably affect the Baha'i election process might be enhanced. Depending on public interest, further developments might be warranted, such as defining WOE seats for market makers and implementing a transition from "practice accounts" to real accounts funded with real dollars. Also, the news and commentary feature might develop into a valued, independent news agency based on grass-roots reporting.
© 2011 James J Keene

3 comments:

  1. On analogy with Intrade, contracts should be phrased in specific language such as "2020 Indian census to reveal more than 10,000 Baha'is, as reported by at least three reliable, independent media sources."

    ReplyDelete
  2. I want to put money on "Rainn Wilson to be elected to UHJ on or before Dec. 31, 2014."

    and short "Rainn Wilson to be stripped of voting rights on or before Dec. 31, 2014."

    ReplyDelete
  3. As may be seen with the WOTrader platform, there is no contract related to an Indian census on the World Order Exchange.
    About Rainn Wilson, the predictions are possible only if the Exchange rules that Mr. Wilson is a super-hero.

    ReplyDelete