A new trading algorithm with financial applications

Abstract

The gravity equation is a useful tool for trading, but also for financial services as recently found. This paper tries to adapt modern theories of gravity equation for these services to a novel theory on trading, for both bilateral and multilateral trade, and supply and demand sides, finding an explicit expression of demand and supply of trade. This paper also includes an explanation of some Internet-based services by considering less transport costs between both countries. The proposed trading algorithm is key for trading development and for evaluating international trade, but also for finance, taking into account the midpoint between the proposed supply and demand of financial transactions, instead of the midpoint between bid and ask prices. This achieves a good fit for international trade and an alpha for financial trading.

Keywords

• international trade
• gravity equation
• financial services
• bid-ask prices
• trading