apis – the key to unlocking the real power of …128 | january 2017 e-forexapis – the key to...

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APIs – the key to unlocking the real power of electronic FX

126 | january 2017 e-FOREX january 2017 e-FOREX | 127

TECHNOLOGY

APIs, or application program interfaces, were not made for the foreign exchange market but it seems as if they should have been, reports Nicholas Hastings.

APIs have developed into a key element of electronic trading, making is faster, stronger, and even more complex as manual trading increasingly becomes a thing of the past.

The concept of APIs, which in the most basic terms allows one piece of software to interact with another piece of software, is far from new. In fact, the whole idea pre-dates even the introduction of personal computing and was an essential part of software development from the earliest days.

As systems developed and the web itself was created and

expanded the importance of APIs just grew and grew in many areas of trading. For foreign exchange traders, the basic API is the interface that allows their platforms to connect with the market.But that is not all.

APIs have multiple features that facilitate information sharing, including real time foreign exchange price quotations, trade executions and order and trade confirmations.Now, just about every major online foreign exchange brokerage service offers proprietary APIs to their clients, not only to enable speed in

automated trading but to ensure stable operations and the execution of trades.

Needless to say, the development and refinement of APIs to suit the foreign exchange market has been rapid. Where once there might have only been just an ‘open’ or ‘public’ API that could be used by developers both inside the organisation that published the API or by any developers outside that organisation who wished to register the interface, there are now other APIs such as that offered by the Financial Information Exchange or FIX, which aim to give clients more

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control not only in the speed of filling an order but offering more safety, anonymity and even the option of cross-connecting with a liquidity provider.

STRONGER, FASTER AND MORE COMPLEXThere are perhaps two key areas that are evolving rapidly at the moment for APIs as providers respond to the needs of the client: the increased use of multiple asset classes streaming down one API and the never-ending need for speedy trading.

The proliferation of algorithmic trading means that firms need to react to market events even faster than the competition to increase the profitability of trades. This increased requirement for so-called “low latency” is exemplified by the use of arbitrage strategies where an opportunity to trade a mis-match between markets may only present itself for a few milliseconds before parity is achieved.

There is even now even talk of “ultra low latency” where an organisation will try to manage a trade in under a millisecond. The importance of latency to profit was highlighted by one global investment bank that suggested that every millisecond lost cut reduced opportunities by as much as $100 million per year.

Mark Chesterman, global business development officer

at IG, sees “low latency” as a “critical requirement for the provision and use of an API.” But, he feels that development is now reaching a stage where cost and returns may not be the same for everyone. “We are at the stage now where some are questioning whether the extra spend to shave off a millisecond is a requirement for all users. Is that extra millisecond worth the extra spend? For some, yes, absolutely. For many, no it isn’t, meaning that extra resources can be spent on strategy and feature improvements,” Chesterman said.

DIVERSIFICATIONThis brings us to the other key area of evolution in APIs – diversification. “The other area we are seeing evolving is the requirement to have multiple asset classes streaming down a single API. Traders increasingly want to both maximise opportunity and diversify risk by broadening the scope of their trading strategies,” Chesterman continued.

Lucian Lauerman, head of API business at Saxo Bank, agrees that there is demand for a range ofAPI services alongside execution, with OpenAPI services sitting alongside FIX. “What is evolving is the range

of connectivity requirements and the need to support a wide range of infrastructures,” he said, suggesting that this is driven by the demands of institutional algorithmic trading and the range of available technology offerings for clients.

Richard Elston, group head of Institutional at CMC Markets, also points to an evolution on the retail side as liquidity is channelled to the MT4 platform used by many online retail forex traders, as they look for more than that has been provided by traditional liquidity providers in the past.

MULTI-ASSET TRADING TAKES OFFNo longer are clients just interested in trading foreign exchange. Many want access to

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Mark Chesterman

“Low latency is a critical requirement for the provision and use of an API but is that extra microsecond worth the extra spend for all users?”

much more. “Everyone wants to be able to trade the top markets,” Eslton said, noting the importance of trading such markets as the DAX, the Dow, gold and crude oil.

Between this and the rise of algo trading, the demand for API services “has greatly increased,” said Saxo’s Lauerman. “APIs now need to cater for a wide variety of clients and uses.”

“The other thing,” he added, “is how APIs are evolving connectivity points in the three central trading zones – London, Tokyo and New York. These liquidity centres are where the prime sources of liquidity are.”

IG’s Chesterman summed up the rapid pace of change. “API trading used to be constrained to professional or highly

sophisticated traders. However, it is increasingly accessible to all and combined with the growth of MT4 in the retail sector there has been increased demand and uptake of algorithmic trading across multiple asset classes in both the institutional and retail spaces.”

HIDING THE COMPLEXITYAs clients demand more multiple streams of trading data, with the aim of creating greater efficiency, more non-bank venues appear to be replacing the more traditional Tier 1 banks, CMC’s

Elston noted. “In the past with brokers and proprietary trading houses there was a greater propensity for clients to trade more limited streams.”

Equally, these days, clients want access to more analytics. Lauerman says Saxo, for example, “offers technical solutions through which clients connect by API to market services that the bank supplies. Data is gathered and analysed to make sure that they are getting the best sustainable source of liquidity.”

“To make sure that you are not having an adverse market effect we need to have as much examination analytics as



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Richard Elston

“There are other protocols out there but FIX is still ultimately king.”

Most major online FX brokers offer proprietary APIs to their clients



possible. This is a key part of the services especially if they are using automated execution.”

Over at IG, Chesterman sees the design of API becoming increasingly important as they become more complex. “Providing an API is often a different concern to how one internally services API requests. Well-designed pricing and trading APIs should hide the complexity of the underlying systems as much as possible, while simultaneously empowering clients to make decisions about the way they trade. For example, an execution API might sweep through internal matching, dark pools, MTF’s (multi-lateral trading facilities), and various lit polls; all of that should be hidden away from most clients by default, while still allowing clients to take control over how their orders are executed if they want to control execution to a fine degree.”

FIX STILL REIGNS SUPREMEIn a world where speed rules, the need for a reliable protocols to allow communication between a client, trader, investment fund or broker and a liquidity provider, is paramount and FIX still seems to reign supreme.

“There are other protocols out there but FIX is still ultimately king.” Said CMC’s Elstone. “While it is old (FIX was first developed in the 1990’s) it is still the market standard. It is all about hosting, technology and infrastructure and FIX is key.”

IG’s Chesterman agrees that FIX is the most prominent protocol in the field, even if there are some refinements still to be made. “We are tracking the work of the FIX High Performance Working Group,” he says, which is working on new standards to optimize FIX application protocols to:

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• Improve the efficiency of message flows and to define leaner messages;

• Optimize Session layer protocol such as sequencing and recovery, and

• Provide efficient encodings for optimal bandwidth utilisation and fast encode/decode times.

“FIX has a significant advantage for clients,”states Chesterman , “in that it is a standard, which means clients can acquire a third party library which they just plug into their application to access the API. However, it is less suitable for market data messaging. The most obvious alternative for this is to adopt an ITCH-like protocol for market data messaging, similar to what is offered by many of the exchanges. These protocols are capable of sending far more market data ticks at a higher rate – but while similar, each provider tends to have its own version, so there is nothing equivalent to a FIX engine.”

There are also alternaives to FIX available. Saxo facilitates DMA access for their cleints via some of their connectvity partners who make use of alternative, low latency protocols, such as ITCH . “While most venues will work with FIX, some venues, such as Hotspot and others will make thier market data available via ITCH. This gives

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clients the lowest latency view of the venue.”

BACK OFFICE HELPAPIs may help with trading but then there is also reconciliation and for this they are becoming even more advanced than ever before.

“There is more to just market data and trading with APIs” said CMC’s Elston. “Beyond the trade we provide drop copy confirming the trade in real time. It is extremely important to have an account API that gives positions and credit status and other mathematical information. It is about giving the client full reconciliation of his position at the end of the working day. You can see what is going on at any given point in time.”

IG’s Chesterman agrees on

the need to provide a wider range of API solutions. “In an increasingly competitive market, forex providers are looking at offering a wider range of API solutions to cater for a broader range of clients, as well as ensuring their products and solutions are more easily accessible to all clients – whether that be retail or institutional.”

He noted that “FIX now has good support for post trade activities such as give-ups and settlement. However, other integrations such as REST/Web integrations are a very good alternative for features not yet supported by FIX and can be built out to support a higher

level of post-trade reporting.”

As Saxo’s Lauerman said: “There is a desire for us to make the entire technology stack available to clients. The range of services we make available via our Open API infrastructure alongside FIX for execution is an important part of the proposition for some of our clients.”

LOOKING TO THE FUTUREEach provider will have its own views on how to improve even more, be it streaming multi-asset classes as one; improving efficiency or in the case of CMC Markets providing a “one stop shop”.

“Our intention is the unification of processes – all asset classes down one channel. Like a one stop shop,” said Elston. “Doing integration once and once only: we are working towards that. It is not only about making

APIs should hide the complexity of the underlying systems

Lucian Lauerman

“It is important that we are not conflicted.”



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sure you are hosting solutions but that it is providing low latency and convenience. We also need efficient price delivery as well as good trading technical support…We need a client to be able to trade with confidence.”

Saxo’s Lauerman see the solutions of the future as “very client led.” “We are making sure that we can offer clients a range of connectivity via API infrastructures they chose, and make sure that we support them across major trading centres.”

Lauerman pointed out that liquidity streams are important

with Saxo offering clients “access to our own liquidity as well as on a DMA basis - but as two separate options.”

He argued that if a provider is aggregating their own liquidity with DMA liqudity “clients don’t know what liquidity they are really making use of. If we keep these separate and are open with the client on what liquidity they are getting access to, this removes that potential conflict of interest. It is important that we are not conflicted.”

The aim at IG is the provision of a full service brokerage for forex clients. “IG is continuously reviewing the technical and

execution performance of our FX liquidity providers and of our own technology stack,” Chesterman said. “Current programmes include improvements to our physical network and operating environments, improving the efficiency and performance of feed and redistribution processes and tuning of pricing algorithms to assure effective and optimal execution for our clients. With the recent launch of equities pricing, we support a full multi-asset class trading capability through both FIX and REST APIs. Increasingly it will be vital to offer a full-service brokerage to FX traders, which IG is well placed to do.”

Clients want access to more analytics

apis – the key to unlocking the real power of …128 | january 2017 e-forexapis – the key to...

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