Author: Anya Aratovskaya
FIX API has been a trending phrase amongst Forex professionals for the past decade. The technology has proven to be the fastest and one of the most secure ways to trade in FX.
A FIX API is an application programming interface (API) that uses FIX protocol. It connects FX Liquidity makers with takers. In our case, FX FIX API is a way to connect directly with a particular Liquidity Provider or aggregator.
Reasons to switch from GUI to FIX API
Some reasons we see so many traders switching from retail FX platforms (GUIs) to trading via a FIX API:
- Looking for faster speed
Retail FX trading platforms often have many technical limitations (memory capacities, architecture and so on). With the proper technology set up, a FIX API can significantly reduce latency compared to the most popular retail platforms.
- Access to Institutional Liquidity
A FIX API will remove the “middleman” and help with access to more sophisticated liquidity providers. However, a FIX API will not guarantee “A-Book” (STP) trade execution. FIX API traders, however, are deemed professionals and have a higher probability of their flow being STP’d.
Tip: If you are working with a European broker, request your full execution report. MIFID II dictates a full disclosure of your execution venues, as well as any IB payouts.
3. Trade Strategy confidentiality
Strategy will be hosted and supported on your side, and that alone will significantly reduce the chances of this being copied. There are two things that should be clear to anyone looking to switch from a retail FX platform to trading FX via a FIX API:
– A FIX API is NOT for newbies. Make sure you have traded a decent sized LIVE account via a retail platform first.
– A FIX API demo should be used to test connection and order mapping only. It will not allow you to test your system profitability in a live environment, unless you intend to use the API for arbitrage purposes and your understanding of a test is to compare frequency of quotes and seek to identify pricing deficiencies. I should add that this type of trading strategy is always short-lived by nature.
Possible difficulties when switching
Here are a couple of issues you may experience during that switch:
- Understanding how the FX Market is structured
What is Prime of Prime, Prime Broker, vs Bridge Provider vs Technology provider vs Retail Provider? I highly recommend you read our blog covering these topics.
- Finding a broker that will provide a FIX API for demo integration
A limited number of retail brokers have the systems and resources necessary to support a FIX API. They will likely try to sell you a retail platform with enabled FIX API access. Tip: You don’t need a broker to start working on your FIX API integration. GitHub or FIX API Trading community will help you get started. Search for the QuickFIX.
- For anyone using automated systems: Re-coding systems and strategies to C++ or Java (most commonly used coding languages for FIX API FX traders)
Here is where the drama between Trader vs Programmer will begin. There are few traders that understand the FX market and can code at the same time. In most cases, a trader has to work closely with developers to code his systems properly. Many FX Traders have a hard time explaining exactly what they need, some are afraid that a developer may copy their strategy, and others are uncomfortable with the choice of a developer that doesn’t understand the market.
And cost: Prepare to spend on development.
- Proper hosting
VPS may not be a workable solution, so get ready to invest in potentially costly hardware, as all tier 1 Liquidity Providers are hosted within premium datacenters.
- Environment: Retail Liquidity vs Institutional
Systems that are performing great on some retail platforms, under retail trading conditions (order types, execution methods) often will not work in an Institutional, “real market” environment. I see countless cases of traders investing thousands in infrastructure supporting trading via FIX API only to find out their strategies are worthless. I highly recommend you work with real market liquidity before taking the next step.
In my experience, I have found the following suggestions to be the most helpful:
- If you are an investor approached by an FIX API trader, please ask for the certified LIVE records. Don’t simply believe in faux retail platform statements that can be easily faked.
- If you are a trader that is being pushed into FIX API development by the dream of faster execution and better spreads, think twice. Calculate your upfront and monthly management costs. Talk to someone who is already doing it.
- Scale your business as you grow. A strategy that works on a retail platform is NOT a guarantee that it will work on FIX API (and vice versa).
- FIX API is great for arbitrage and news trading, but nowadays, it will be detected within seconds even by those less technologically advanced Liquidity Providers. This just means that you’ve wasted a lot of time and resources.