:Draft:Trading System for Fixed-Value Contracts

{{AFC submission|d|nn|u=Jimkwasek|ns=118|decliner=KylieTastic|declinets=20250516133929|reason2=ai|ts=20250516132351}}

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Trading System for Fixed-Value Contracts

A **trading system for fixed-value contracts** is a financial market mechanism designed to enable the real-time trading of contracts with predetermined face values. These contracts represent binary outcomes, and participants engage in buying or selling positions based on their predictions of an event's result. The system was devised to facilitate efficient, structured trading—particularly in contexts where immediate execution and settlement are required.

Background

The concept of fixed-value contract trading emerged as an alternative to traditional betting and financial exchanges. Unlike conventional betting systems, which rely on a central bookmaker to set odds and manage risk, fixed-value systems are peer-to-peer and automated, allowing users to both offer and accept trades. Each contract specifies two mutually exclusive outcomes, such as "yes" or "no", with only one outcome ultimately prevailing. These systems are zero-sum: the total payout to one side equals the total loss to the other.

Development and Patent

One of the earliest and most comprehensive implementations of this concept was **WorldEx™**, invented by American entrepreneur Lawrence (Larry) Kohls. Kohls filed a patent application in 1999 for a “Trading System for Fixed Value Contracts,” which was later granted as **U.S. Patent No. 7,020,632 B1** in 2006.[^1] The system also received international patent protection, including **WO Patent No. WO2007140194A3**.[^2]

WorldEx™ introduced the idea of treating betting contracts as tradable financial instruments. It allowed users to assume either side of a contract and to enter or exit positions dynamically during an event, similar to how equities are traded on financial markets. This mechanism laid the groundwork for the modern betting exchange model.

Comparison with Betting Exchanges

A **betting exchange** is a platform that enables users to back or lay outcomes rather than betting solely against a bookmaker. The system developed by Kohls predates and conceptually aligns with the model later popularized by companies such as **Betfair**, which launched in 2000. Unlike traditional sportsbooks that profit from offering less favorable odds, betting exchanges generate revenue by charging a commission on net winnings.

Betfair and other exchanges adopted similar real-time trading functionality, allowing users to adjust positions as events unfolded. Kohls's patented system introduced several key features still used today, including:

**Automated Bid Matching:** Trades are executed when bids from opposite positions match.
**Real-Time Market Data:** Traders receive instant updates on contract status and odds.
**Immediate Clearing and Settlement:** All trades are settled in real time using pre-funded accounts.
**Networked Access:** The system is typically deployed over secure, distributed digital networks.

System Functionality

The core of the fixed-value trading system involves contracts with a fixed face value (e.g., \$10), and a binary outcome. Traders place bids specifying their preferred side, price, and quantity. Once an opposite-side bid matches, the trade is executed. The system determines the winning side after the event concludes, and those holding positions on that side receive the face value; losing side participants receive nothing.

This structure ensures transparency, limits counterparty risk, and permits flexible trading before and during live events.

Influence and Adoption

While the **WorldEx™** platform itself did not become a household name, its architecture strongly influenced the development of in-play sports betting and prediction markets. The system is cited in the evolution of financial instruments that simulate betting outcomes, such as **prediction markets**, and in academic literature on decentralized betting models.[^3]

Inventor

Lawrence Kohls** is an American entrepreneur whose work spans real estate, technology, and financial systems. He is best known for pioneering innovations in the prediction and wagering industries. Besides WorldEx™, Kohls is associated with multiple technology ventures and legislative initiatives aimed at modernizing parimutuel betting and binary trading systems.