Finance

Financial Information eXchange (FIX) Protocol Messaging

Financial Information eXchange (FIX) Protocol Messaging

What is FIX?

The Financial Information eXchange (FIX) Protocol is a set of messaging specifications for electronic trade-related messaging communications. It has pioneered the trade environment and proven crucial in driving many of the developments in electronic transactions that have arisen over the past decade. The FIX messaging standard is owned, maintained, and developed through the collaborative efforts of FIX Trading Community™ member firms, which include many of the world’s leading financial institutions.

  • It is used for automated trading of securities, derivative, and other financial instruments.
  • FIX which is open and free is a public-domain specification owned and maintained by FIX Protocol, Ltd.
  • FIX supports trading in the pre-trade, trade, and post-trading operations of various financial instruments including equities, fixed income, foreign exchange, and listed derivatives markets.

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How does FIX Messaging work?

A FIX session has two elements allowing the exchange to take place: a server listening to incoming connections, and a client initiating the connections.

  • Every message in FIX contains a series of tags. “Tags” consists of hundreds of different fields that could be in the messaging. For example, Symbol, Shares, Side, Order Quantity, Price, and Order ID could be a field in FIX Messaging.

Assume the trader wants to place an order on a particular bond, as an example. Let’s see a sample message for an order to have a better understanding of the protocol.

| 14=0 | 38=3000000 | 39=0 | 40=2 | 44=100 | 54=1 |60=20180822-08:10:35.452 | 150=0 | 151=3000000 | 423=1 | 10=117 |

This form of the message is called “Execution Report,” because it is the server’s message that confirms that the order was placed on the market. For example, tag 54=1 means that the trader has a Buy Order, 38=3000000 means that wants to buy 3 million shares for that bond, tag 14=0 means that he didn’t trade anything on this bond and tag 48 specifies the ID of the bond. Tag 60 specifies the time when the order request was initiated, and the list continues. Tags can vary based on what sort of message is received.

What are the benefits of FIX?

Benefits to the dealer:

  • Helps enhance efficiency by freeing up valuable time otherwise used to communicate price and execution data. Enables a greater emphasis on complex trade issues involving consumer contact, market color, and commentary.
  • Helps to minimize costs associated with manual errors in trade entry, implementation, and post-trade procedures by facilitating a more streamlined integration of different applications and functionality for order management.

Benefits to the sales trader:

  • Allows traders to continue talking on the phone and email with dealers for dynamic trading problems that need market color and commentary.
  • Throughout the day smooth and real-time integration with execution data, so the dealer is kept continuously up-to-date with their order status without having to be called multiple times a day to monitor progress.

Benefits for the buying and selling sides:

  • Enhance the speed and reliability of the whole process of trade entry, execution, and reporting, which helps to facilitate STP and reduce the costs of manual errors.
  • Enables seamless accessibility to various counterparties, which improves price transparency and liquidity access.

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What are the challenges in FIX?

Reliability:

  • Reliability deals with the ability of the FIX provider to manually redirect traffic around a failed server, which will result in costly downtime.

Scalability:

  • Scalability addresses the Information Technology administrator needs to configure a one to one client to server path, causing the use of many IP addresses, which is very time consuming and very difficult to manage.

High Performance and Low Latency

  • High Performance and Low Latency deals with FIX servers having to connect to various outside systems, which require NAT (Network Address Translation) to public IP addresses. Currently, routing equipment used for NAT is costly and will produce undesired traffic delays.

 

Author: Keval Shah

About the Author: Keval Shah is a Chartered Accountant and FRM 2 Candidate. He is passionate about financial markets and loves to play Chess.

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