What is FIX Protocol?
FIX or Financial Information Exchange protocol is a scalable electronic communication and layout system to facilitate and streamline real-time and historical information exchange for financial transactions of indications, orders and executions. It supports various formats and communication channels between financial entities and is compatible with nearly every network technology.
Before the FIX protocol was developed, communication of trade information was usually carried out via phone or a unique file format. FIX was created in 1992 and originally focused on automating communication carried out via phone and benefitting from the standardization of the trading process. It is owned by the FIX Trading Community, initially known as FIX Protocol Ltd., a company incorporated by a group of organizations to specifically maintain FIX and keep it vendor-neutral, meaning that it is not owned or controlled by a single entity.
The FIX Trading Community is a global organization, with an aim to evolve and enhance the FIX ecosystem. It includes members and stakeholders from around the world ranging from trading communities, regulators, buy and sell side firms and other financial organizations which work together as a community to ensure that the FIX ecosystem expands and matures to meet the trading market requirements while also encouraging more traders to incline towards using it.
FIX protocol supports multiple communication channels including texting, email, stock allocations, indication of interest communications, news messaging, order submissions and changes, advertisements and execution reporting. It is used mostly for B2B transactions, working to enhance transactions by reducing unnecessary messages and communication time, enhancing client base and eliminating the need for paper-based communication and documentation. It is not a software itself but is a language around which software can be developed to execute trades in various markets.
Being the leading messaging platform used by countless banks, hedge funds, brokerage companies, buy and sell-side firms and trading organizations, the FIX protocol has now become an essential part of financial markets globally because it aims to reduce human error and makes the transaction process transparent, cost-efficient and timely. It is also being used by regulators to relay trade information. Furthermore, it offers investment opportunities to firms while reducing market entry cost, and allows participants to communicate domestically and internationally, quickly.
Developed to not be dependent on any communication protocol (such as TCP/IP) or a physical one (copper, fiber) for electronic communication, FIX protocol is constantly evolving and progressing to support the new and emerging requirements of the trading industry. Each new version of FIX creates different kinds of messages and fields. The latest version supports multiple asset classes and caters to a broader scope of business processes.
What is Fix Protocol used for?
The main function of FIX protocol is to transfer the following data:
Pre-Trade
This is used for strategic decision making to be implemented in the market. It includes liquidity levels, order flow and market stats.
Trade
It is based on the actual act of trading and includes order entry, confirmation and execution functions.
Post-Trade
This part works to record, process and transfer asset ownership involved in market-based transactions.
FIX consists of messaging specifications to be used during trading processes. It was initially created to support equities trading in the trading environment but it has now quickly progressed to support straight-through processing (STP) from indications of interest (IOI) to allocations and confirmations. It is the standard communication tool used by traders in the forex, listed derivative and fixed income markets.
FIX protocol conducts various useful actions other than just being a standardized communication tool between two parties. This includes order acknowledgement, account allocations, indications of interest, administrative messages and delivering information in real-time.
How does Fix Protocol Work
The session is run on the FIX client which is connected to the FIX server. FIX engines are used to connect two parties using the FIX protocol. Once the connection has been made, there are two kinds of messages:
Admin/Session Layer
To transmit administrative information like logins and logouts, heartbeats and requests to deliver missing messages between FIX counter-parties. This layer was separated from the application layer in FIX 5.0 Version.
Application Layer
To transmit order requests, pre-trade and post-trade messages, trade executions and current state of orders via APIs of the FIX Engine implementation. FIX messages are flexible; traders can add FIX tags to extend the base message standards established on bilateral or multilateral user requirements. This is characterized in a ‘FIX Rules of Engagement’ (FIX RoE). The messages on the application layer are sent by the session later.
The contents of a FIX generated message are as follows:
Header
this part contains the basic information of the FIX protocol, the size, length and type of message being sent and the information of the sender and receiver.
Body
this part is the actual message, the financial information being sent as a set of mandatory and optional fields and values.
Trailer
this part relays information relating to the signature and the checksum field, required for compliance purposes.
Each message contains value, equal and tag pairs, separated by the special ASCII character ‘\01’ or SOH (a non-displaying character), allotted to a certain aspect of that action. Each tag is separated from the value using an equals sign.
After the information has been transmitted, both parties disconnect their FIX engine simultaneously to ensure the end of the transaction and for security purposes.
Why you should choose Fix Protocol
FIX protocol has now become the primary tool used for electronic trading. Here’s why:
Cost-Efficient
The standardization of FIX protocol as the electronic trading communication platform reduces the cost and complexity of process integration, making it the preferred platform for traders. By permitting duplication from existing implementations for creating a trading platform and automated execution tools, it reduces the cost further.
Access To Real-Time Data
FIX API helps users gain access to real-time and historical market data from both open and close markets, allowing them to see market depth and therefore make informed trading decisions based on the information they receive.
Less Complex
FIX is the standard communication protocol, making it easier to involve numerous participants without the complexity of dealing with different languages, tools and platforms to interact and exchange trade information, thereby increasing trading possibilities.
Improved Quality
A streamlined protocol means that firms can conveniently switch between brokers or connect to multiple brokers reducing switching cost and increasing competition for trading services. Due to the increase in competition and capital market operation efficiency, fixed costs are reduced, reducing broker commissions and trading platform fees, eventually being beneficial to the end investor in the form of savings.
The traditional trading method involved the usage of phone and emails, making the process more complicated and less secure.
Using FIX protocol allows the facilitation of automating these processes and converting them online, enhancing the quality and efficiency of the trading process.
High Performance
FIX channels are fast. Direct connection to the counterparty allows traders the opportunity to trade multiple kinds of asset classes using a single screen.
FIX is built to transmit huge amounts of financial data in the shortest possible time. The communication channel follows rules to streamline data transmission making the FIX protocol channel fast and precise. Furthermore, FIX integrates internal processes and external operations, reducing human error, thereby enhancing performance and eliminating operational risk.
Privacy
Financial transactions require complete privacy. The protocol allows you to run algorithms on your personal devices instead of commercial platforms, making trading communication more secure and private, reducing the risk of disclosure. Furthermore, it provides a secure and fully encrypted channel while simultaneously providing universal connectivity.
Fix Protocol Inegration Company
Winterwind can provide FIX protocol integration to your web, mobile or desktop-based applications. Our team has the required expertise and financial industry knowledge to deliver customized FIX solutions to do work such as creating automated trading systems, boosting trade execution through servers without a need for any third-party software, giving you direct access to financial markets.
We have experience integrating high-volume liquidity providers such as TradAir and DV Trading. We can help your business seamlessly integrate FIX in a range of applications such as real-time order books, OTC orders of cryptocurrency or forex, algorithmic trading applications and more, while also integrating FIX protocol with other components like order management, warehousing and analytics. We can also assist you in exporting your FIX specifications as a schema for integration with FIX engines.
The majority of Winterwind’s experience integrating FIX is using Java and the QuickFix library, however there are other programming languages and libraries that can be used as well.
Our Portfolio
1. DV TRADING
Winterwind has integrated the cryptocurrency liquidity provider, DV Trading, into one of the cryptocurrency exchanges it has developed. DV Trading is a professional, high-volume liquidity provider based in Canada and the US. Using open-source software, QuickFix/J, we have integrated their technology into real-time order books. Some examples include Bitcoin-USD and Ethereum-USD trading pairs.
Talk to us about your project today!
