Our company has a lot of experience in creating various trading strategies. Along with such platforms as MT4 and MT5, we have also developed strategies for FIX API, which is currently considered to be the most popular protocol for professional traders who use high-frequency or arbitrage strategies, or who trade the news.
In 2005 we created our first robot for arbitrage trading. By the time we produced our first arbitrage robot for FIX API Trading ten years later, we had designed more than 50 connectors for many FIX API brokers. All of them work well with our programs.
The list of these brokers speaks for itself:
ADSS, ALPHA, BBO, BJF, CFH, CMC, CQG, CTRADER, CIRCLE MARKETS, CURRENEX, DUKASCOPY, EXANTE, FIRSTDERIVATIVES, FOREXWARE, FORTEX, FORTRESS, FXBA, FXCM, FXPIG, GAIN GTX, HOTSPOT, ICM, INTEGRAL, INTERTRADER, INVAST, LCG, LMAX, MATCHTRADE, MGM, NEXUS PRIME, OLFATRADE, ONETRADE,ONEZERO, PFD, PRIMEXM, PROTRADER, QTX, SAXO, SMARTTRADE, SPOTEX, SQUARED FINANCIAL, SWISSQUOTE, TRADAIR, THINKFOREX, TT, VISUALTRADING, XENFIN, XOPENHUB, i-Gold, Nexus
FIX API pros and cons
In this article, I would like to discuss those pros and cons of FIX API trading that are rarely mentioned by brokers.
Without question,the FIX API protocol is much faster than its MT4 and MT5 counterparts. This happens for a number of reasons that include the separation of the flows of orders and quotes, the absence of queues in order processing, and the absence of any MT4 and MT5 servers. On average, it takes only about 4 milliseconds to fill an LMAX order that is sent through FIX API, while it can take anywhere between 200 milliseconds and several seconds, depending on volatility, to fill the same order when sent through an MT4 broker using its A-book. These kinds of delays increase slippage, which in turn renders any trading strategy ineffective. It is no coincidence that, as recently as a few years ago, many MT4 brokers did not have any bridges to transmit orders for clearing (i.e., to the liquidity provider); they kept all orders within the firm in the anticipation that clients would lose their deposits.
Another undeniable advantage of using FIX API is the availability of IOC and FOK limit orders that help the trader control slippage.
The benefits of using FIX API are clear, but some qualifications have to be made.
When you trade through FIX API, you remove the MT4 server from the equation and, therefore, any intervention on the part of the broker. This is true so long as you’re not using toxic strategies (i.e., arbitrage). As soon as your FIX API broker identifies your trading as arbitrage trading, several scenarios can unfold:
1. If you use IOC or FOK limit orders, your orders will either be rejected outright or the fill will be delayed. The broker will try to explain this by citing a lack of liquidity at the top of the book and will promise to help you in the future, a promise that will come to naught.
2. Claiming that arbitrage trading is illegal and harmful to the broker’s systems, the broker will ask you to take your business elsewhere. We’ve seen this happen before. Such claims are completely false: arbitrage trading is neither illegal nor harmful to brokers’ technology, and we have yet to receive demonstrable proof that corroborates these kinds of assertions.
What explains brokers’ hostility to arbitrage trading in a real market that has a buyer and a seller? Bear in mind that many liquidity providers were once MT4 brokers.
Although they have evolved into liquidity providers, they have still remained in the gray zone, where they take all the risks by trading against you instead of sending your orders to the real market. In this situation, if you use arbitrage, the broker loses money. It should be noted, though, that as this part of the market is more sophisticated, using latency arbitrage will make it harder for the broker to flag you.
The above does not apply universally to all FIX API brokers. But even those brokers that use so-called gray technologies can still offer great platforms for arbitrage trading as long as the trader follows several rules. We have mentioned these rules before, and we’ll recapitulate them again.
FIX API Arbitrage Trading Rules
Rule #1 – this is the first and most important rule. Do not use latency arbitrage even if only to test brokers. It is better to start right away with Standard Lock Arbitrage, VIP Lock Arbitrage for FIX API, Standard Hedge Arbitrage, or VIP Multileg Arbitrage. This will help make your FIX API accounts last longer.
Rule #2. Use additional strategies to create non-toxic flow. If you submit different kinds of orders through your broker, it will be harder for the broker to identify your trading as arbitrage trading – naturally, on condition that you use Lock or Hedge.
If you’re using VIP MT4 Lock or VIP FIX API Lock, you can use a module that was specifically designed by us to create non-toxic order flow. Just remember to add other strategies (it is advisable and even necessary to use FIX API Trader instead of arbitrage on some days; and it is especially important to do so at the beginning, before you start using arbitrage, as many brokers assess your trading tactics when you first start trading with them).
Rule #3. Don’t be greedy. Traders often come to us to report that our application is no longer working; when we analyze the performance of the program, we invariably see that the trader has taken profits far too quickly. The last statement that I’ve received shows a profit of 50% in ten days (we’d also like to thank the trader for giving us a good review). I am aware that some arbitrage systems providers publish data that show profits in the four digits, and I often hear from traders who complain that a profit of 4% is insufficient and a profit of 100% is more desirable. You need to be realistic. Some 5-7 years ago, when brokers were less cynical, a monthly profit of 500% was possible, although you would have had a difficult time withdrawing the profits. Today we do not recommend aiming at a monthly profit that exceeds 30-40%.
We have unearthed a flaw in the way that gray FIX API brokers (I propose to call them that for the purposes of our discussion) operate. We’ve always known that you can’t close orders in a FIX API environment the way you can in an MT4 one. That is, you can do something similar by, say, closing a one-lot buy order on EUR/USD by opening a sell order for the same quantity. If you have traded on FIX API, you’ve probably noticed that there is a list of buy and sell orders that appears in the GUI, although some GUIs allow you to view this history in MT4 format.
However, gray FIX API brokers, especially those that use market makers’ plug-ins, still distinguish buy orders from sell orders. This can be done through currency exposure. If the exposure for EUR/USD equals zero, then a new order will be a closing order. As the broker is aware of the direction of the market, the broker then manipulates the feed, filling orders that are opened in the direction counter to the market immediately, while introducing slippage on orders that are opened in the direction of the market. However, this can be used against the broker!
As brokers read our blog, we would prefer not to disclose the specifics of the algorithm, but we do expect to deploy an update for Standard Lock Arbitrage and VIP FIX API Lock Arbitrage in the next several days. The update will be free.
I hope that the above will help our clients increase their profits. We don’t believe that the forex market should turn into a casino; it has to be a platform where all participants, brokers and traders alike, have the opportunity to make money. Brokers should be able to earn commission fees, while traders should have a chance to trade using any trading strategies they want. By the way, arbitrage trading is the tool that forces brokers and intermediate liquidity providers to transmit traders’ orders to the real market – which is how it should be.
Best of luck in your trading!