We’re spoiled by expecting immediate transactions, whether we’re buying a gift on Amazon or buying and selling equities. Real-time electronic data protocols, like FIX (Financial Information eXchange), facilitate the instantaneous updates that notify you of the stages of an order as it becomes an executed trade.
Before technology ramped up the speed of life, equities trading took time since it relied on telephone and mail. The process of trading was much more time-consuming than it is today, as more time was needed to complete each stage, including:
- Finding the right stock at the right price
- Locating a counterparty to agree on the deal
- Submitting the transaction
- Confirming the parties can deliver their money or shares
- Settling the final terms of the transaction.
Even after trading was first automated, the buying and selling of stock were mostly manual. If there was a mistake with the trade, you might not find out until you received your mailed trade confirmation, and then it was too late.
What is FIX?
Originally developed in 1992, FIX allowed equity trading between Salomon Brothers and Fidelity Investments. Today, FIX is a vendor-neutral electronic communications protocol that enables around 300 firms to exchange real-time securities transaction information at sub-second rates of speed.
It’s an open-source platform for all stock market participants, including online traders buying stocks and hedge funds that may be selling shares on the other side of the transactions. The FIX protocol is the current messaging standard in the global equity markets.
What are the benefits of real-time data?
FIX streamlines, integrates, and improves trade-related communications. Let’s explore these benefits in more detail.
Fast, seamless communications
FIX is the protocol standard and is used to connect most trading platforms. Imagine three people want to converse; the most efficient way to exchange information is to use a common language. Otherwise, you need translators, and your conversation depends on correct interpretations.
As the standard language used in the securities industry, FIX can communicate with just about any application via a FIX engine. This means that your data does not need to move through translation layers to be readable by your target. It’s error-free and can transfer data in as little as five microseconds.
The FIX protocol is also highly flexible. Much like you must have an iPhone to send and receive iMessages, as long as each entity has a FIX engine, buyers, sellers, and intermediaries can pass trade information back-and-forth regardless of their internal application. FIX is:
- Not over-standardized
- Compatible with leased lines, frame relay, and the Internet
- Not reliant on a single security protocol
Ultimately, individual firms can integrate FIX into their existing tech stacks to streamline their incoming and outgoing communications.
- Integrated services
Real-time data applications create a deep integration of your software and services. More profound technical architecture reduces latency, security risks, and the reliance on end-of-day trade uploads.
Latency is the time it takes for data to travel from start to finish across a network. Usually, when data travels, it “hops” across intermediate messaging devices. This occurs both outbound during your request and inbound with the destination server’s response. The more hops in the journey, the more latency is impacted, increasing the time you need to wait for updates.
Another benefit of fewer hops or touchpoints is that there are also fewer opportunities for your messages to be hacked or lost, increasing the overall security of your transmissions. Some systems require multiple connections to make a trade, and your order’s information is shared at every touchpoint. The FIX gateway cuts down on these connections and the number of times your messages are transferred.
And, of course, integration of FIX messaging cuts down on manual data communication. Without FIX, you may have to wait until the end of the day for your counterparties to send their transaction reports and confirm that all trades have been completed. These reports are often uploaded via an FTP site. However, with FIX, you get real-time updates when your trades are made.
- Improved interaction
One of the most noticeable advantages of using real-time data and the FIX protocol is the improved interactions between all parties in a trade. The FIX protocol improves business messaging and electronic transaction flow. It minimizes redundancy and the reliance on telephone calls, written messages, paper transactions, and physical documentation.
Regardless of which side of the trade you’re on, real-time data provides immediate notifications to keep you up-to-date with every stage of the transaction. This is especially important if an error occurs at some point in the messaging. FIX provides real-time message rejections that alert you about any issues. As a result, you can take quick and appropriate action to minimize recovery time and avoid missing out on a trade opportunity.
The stock market industry uses technology to make the business highly efficient and secure. A real-time messaging standard such as the FIX protocol delivers robust methods of high-speed communication. And as you know, time is money.