Lifting the lid on why and how FIX protocol variations create business opportunities and challenges for optimizing trading effectiveness.
Understanding the idiosyncrasies of the Financial Information eXchange (FIX) protocol benefits anyone developing, optimizing and supporting electronic trading. Even when other trading protocols have superseded it, FIX remains the de facto model for many of its replacements. As such, lessons learned managing FIX implementations are readily transferable to other trading protocols.
In this blog, we explore some of the reasons for, and challenges created by, the many venue-specific FIX customizations and variants we run across while working with our customers.
As electronic trading grew more complex and competitive, exchange specific extensions FIX protocol flourished and became a point of differentiation. Customized order types, incentives, rebates offered to attract order flow are standardized by custom tags (user-defined fields), or even custom schemas, defined by each exchange, especially in equities. As such, the FIX messages related to those orders have to carry additional information related to that specific order type or business opportunity.
Trading firms wanting to take advantage of these business opportunities, leverage these venue-specific custom tags within their trading applications. In effect, trading applications communicate with each venue or counterparty with a “local dialect” of the FIX protocol. For example, the US and UK share a common language but when a Brit tells an American that they’ll see them in a ‘fortnight’ the meaning may be lost because it’s not a word that traveled across the Atlantic.
Occasionally, these local FIX dialects can cause issues that appear to be connectivity hiccups. For example, if an exchange creates a new order type and the middle and back-office applications are unaware of the meaning of a ‘fortnight’ then the communication breaks down. This is one of the reasons our technical ebook on FIX Performance Management notes that:
"Given these flexible but standardized ways of specifying the exact dialect of FIX to be used, most basic connectivity problems with FIX can be resolved simply by ensuring that both counterparties are using the same FIX schema."
On the other hand, understanding and managing the performance of your FIX implementation is a much more challenging prospect. It is rare for counterparties to augment the standard FIX timestamp logs with performance-related custom tags, leaving firms in the dark when optimizing market data or trade plant performance. Raymond Russell, Pico Fellow, explores how little insight is achieved without network data, and just using application-based instrumentation, in this blog.
The short answer is to better measure and correlate the relationship between trading and underlying technology performance, which is a recurring theme in our customer conversations.
With venue-specific analytic plug-ins, Corvil automatically indexes the message data associated with the custom FIX tags. It also empowers an automated measurement of venue- and application-specific metrics. These configurable statistics empowers clients to make sense of the information more efficiently. In other words, the business context derived from the messages enhances the performance insight we provide. Without that extra venue-specific support, extracting this data becomes a manual, time-consuming regex searching and filtering activity. As one Corvil user put it:
“It's the fact that you can build your own metrics. The fact that, as long as you know what the field is in the message, you can build your metrics based on that field and that is very good. It means you can do the analytics that you actually care for.”
By using the business context embedded in the FIX messages, application developers can understand what happened, when it happened, and what to do about it from an ‘app tuning’ perspective. Business analysts can have a field day. Infrastructure performance metrics can be correlated with their chosen business metrics to identify new opportunities to improve execution quality.
“We use different statistic for different markets. Based on that, we can work with different markets or exchanges to match the timings. Or, we use a different routing logic within our application to be able to process the order at the same time. Based on this analysis and the statistics that we have, we can use it to match or change the routing logic that we have.” -Assistant VP Equities Liquid Markets
With new and updated analytics released every month, Corvil frees trading firms from the constant maintenance effort that dooms many internally built monitoring tools.
Download FIX Performance: Mechanisms, Measurements, and Management eBook for a deeper dive into FIX logs, network analysis and trade plant optimization.