![theorem-technologies-logo.png]](https://theorem.io/hs-fs/hubfs/branding/theorem-technologies-logo.png?height=40&name=theorem-technologies-logo.png){kind=logo}
Price Allocation FAQ
Frequently asked questions related to how Theorem assigns trade prices to trades allocated in it's trade splitting app.
About
This FAQ applies to Theorem's trade splitting allocation features that are part of the Intraday Trade Data Viewer module.
| ⚠️ | Trade Managers are solely responsible for running a fair and equitable allocation methodology. |
Software and tools are designed to meet a trade manager's needs, but the manager is at all times responsible for ensuring fair and equitable allocations and meeting any compliance, regulatory or legal requirements.
Standard practices may or may not be suitable for a particular manager.
Frequently Asked Questions
What are trade price allocation methods? What does Theorem support?
Does Theorem's app use artificial intelligence to allocate trades?
What is the best method to use?
Why not always use APS?
Does best fit guarantee the best combination?
What is the difference between linear and heuristic for best fit?
Can multiple trade allocation methods be used for the same accounts?
What happens when averaging only one price?
What are trade price allocation methods? What does Theorem support?
For more information on trade price allocations including representative examples, see Trade Price Allocation Methods.
Does Theorem's app use artificial intelligence to allocate trades?
No. All of the app's allocation features are deterministic.
None of our AI models are used to
- Determine any allocation;
- Train or optimize our deterministic algorithms;
- View any fills, allocations, or results of any production data.
Theorem's software development lifecycle includes the use of language model coding agents in a read only environment that is segregated from all client data.
What is the best method to use?
This depends on the individual needs of the trade manager and many other factors.
- Trading strategies that allocate only once per day (when allowed) generally favor APS allocations for compatible markets and brokers.
- Low to High and High to Low are generally considered "low tech" options but still may be suitable for many programs.
- Best Fit corrects deviations over time and particularly suitable for trading strategies that are increasing or decreasing positions in the same products daily.
Why not always use APS?
- In exchange cleared derivatives, many markets do not allow synthetic trades to be created and thus APS is not allowed.
- Some executing and clearing brokers may not support APS allocations, or have different rules about when and how APS may be used.
- If a one time deviation occurs because of a partial fill, redemption, subscription, or other issue, APS will "bake in" the deviation and make it difficult to correct over time unless manual action is taken to correct the deviation in future allocations.
Does best fit guarantee the best combination?
No.
Determining the perfect combination of trades is a complex combinatorial optimization problem that can not be solved by brute force or any known mathematical operation for all allocation problems. In some cases, it might be possible for simpler algorithms or even a trial and error process to produce better results for specific sets of trades, but Theorem's Best Fit algorithms have been optimized to create reproducible results in reasonable time periods that gravitate towards minimal price deviation over the long term.
What is the difference between linear and heuristic for best fit?
Linear and Heuristic are both types of solve algorithms Theorem uses to determine the best combination of trades to achieve the best outcome. The functional difference is the trade off between speed and optimal allocation results when performing allocations that have many price levels and the total fill quantities are greater than 1,000.
- Linear formulates the allocation task as a program whose objective is to minimize the maximum (or total) deviation in mean price across all accounts. It is computationally intensive but, given sufficient runtime, provides the optimal allocation.
- Heuristic delivers a near-optimal allocation in milliseconds. It uses an efficient approximation technique to balance mean prices across accounts (aliases).
Can Multiple Trade Allocation Methods Be Used for the Same Accounts?
Yes. Theorem supports using and applying different allocation instructions based on user preference or situation. It is up to the manager, not any allocation tool, to insure that compliance rules, regulations, and laws are followed to insure that all accounts receive fair allocations.
The most common reason to use multiple trade price methods is to use APS for markets where it is allowed and Best Fit on other markets.
What happens when averaging only one price?
Note: APS always creates synthetic average trades, even when there is only a single fill or multiple fills with the same price.
In many post trade workflows, the use of APS is built into the executing and clearing broker's processing systems-- the brokers may expect or require average prices in all circumstances. In order to maintain compatibility with these systems, Theorem will always create synthetic allocation trades when APS is used as the trade price method.