I’d like to introduce you to FIX API so that by the end of this article, you will have learned what FIX API is and how it can help you as a trader.
Typically, ordinary retail traders use MT4 or MT5 accounts, or perhaps cTrader or NinjaTrader. None of these are ideal. When an order is sent, say, from an MT4 terminal, it will be sent to an MT4 server through a protocol created by MetaQuotes – a protocol that leaves much to be desired. For one, it is slow, which creates a delay while the order is being transmitted. Also, if you’re in the A-book (i.e., you’re trading on the forex market), the order will be sent through a bridge that connects the MT4 server and the liquidity provider – and that is the best-case scenario. In the worst-case scenario, there will be a few more intermediaries along the way.
Let’s stick to the best-case scenario: the order goes from the MT4 server to the bridge. There is a delay here, following which the order is moved from the bridge to the liquidity provider, which takes place through FIX API protocol. The order is submitted to the liquidity provider; the liquidity provider then returns the order to your terminal with the price it was able to offer at the time, and the order now becomes an open one on your terminal. The delay produced by this sequence of events can reach anywhere between 100 milliseconds and several seconds. This is because the price is liable to change during this timeframe, and high slippage can occur.
If, however, you trade with a FIX API broker (i.e. through FIX API protocol, which is one of the fastest of its kind and is used by financial institutions), the order will be transmitted directly to the liquidity provider and filled right away. Orders delays can be as low as three milliseconds; slippage will be minimal as well. This will have quite an effect on your profitability.
Another advantage of using FIX API is the ability to use limit orders such as fill-or-kill (FOK) or immediate-or-cancel (IOC) orders. When you send such an order, you get to specify the slippage you’re willing to tolerate. For example, you might send an order with a price of 1.35 and a slippage of 1 pip. The broker will fill the order at the requested price with a slippage of one pip, or better, but not at a price worse than the one specified. If the broker cannot fill it at the requested price or better, the order will be rejected; but there will be no slippage and, therefore, no losses on your end.
The difference between an FOK order and an IOC order is that an FOK order instructs the broker to either fill the entire order at the requested price or kill it in its entirety, while an IOC order can obtain a partial fill. For example, if you submit an FOK order for 10 lots, the broker will either fill the entire ten lots at the requested price or better or, if the liquidity isn’t there or the price has gone the wrong way, will reject the whole order; if you send an IOC order for 10 lots, the broker might fill 5 lots and reject the rest, if the rest cannot be filled at the requested price or better.
The experienced trader is well aware of these two advantages of FIX API, both of which help improve the trading strategy used and give the trader an edge over others.
A few years ago, I would not have been talking about FIX API. Back then you needed to have at least $20,000 – and often more – to open a FIX API account. Now you can open one with as little as $500. FIX API accounts are no longer the exclusive preserve of institutional clients; they are now accessible to retail investors who can open a FIX API account at any time and use it for their trading. As a matter of fact, cTrader automatically offers FIX API accounts to any client who opens an account with the company. For example, if you open a cTrader account with $200, you need only click on the “FIX API Credentials” button in the platform in order to receive your FIX API credentials that will let you trade directly through FIX API, without having to use the cTrader platform. That said, we recommend using FIX API accounts and not cTrader FIX API accounts, as they do not yet provide FOK or IOC orders and, as we believe, there is an additional server that is present with cTrader, which might result in delays.
What do you do once you have a FIX API account? You probably have some trading strategies that were developed for your MT4 terminal. How do you use them in your FIX API accounts? There are several approaches here. You can use an application such as FIX API Trader, which will enable you to use a FIX API feed to trade in automatic mode in MT4, or send orders to a FIX API account without any delays. Alternatively, you can rewrite your advisor in C++ or C# for FIX API protocol. The cheapest option, however, is to go with an application such as FIX API Trader.
What trading strategies work best with FIX API accounts? High-frequency strategies will certainly work well – that is, strategies that open many orders and do so frequently, and that are sensitive to order execution time and to slippage. Strategies that are oriented towards trading the news, where slippage is an important factor in the trader’s profitability, are also compatible with FIX API accounts. However, you’re not limited to these strategies; many others can be used as well. Bear in mind that a FIX API account practically excludes intervention on the part of the broker. MT4 terminals and servers were created for brokers and therefore offer dealing functionalities that make it possible for brokers to interfere in their clients’ trading – in your trading. The broker can engage in price manipulation or reject your orders if needed. As a trader, you might have seen many errors or instances of a dropped connection in your MT4 terminal – if your trading strategy is successful, a broker using the B-Book model or the hybrid model has every reason to get in the way of your trading and your profits. To avoid all this, you can use FIX API accounts. They will let you avoid external intervention in your trading; and, if your trading strategy is truly successful, it will work without any problems.
Also, if you calculate the amount of money you pay in commission fees and in spreads to MT4 brokers that buy liquidity from FIX API brokers and liquidity providers, you’ll realize how much money you can save when using high-frequency strategies. If a broker offers you terms that are considerably better than those offered by a FIX API broker, it is highly probable that the broker has a B-book or uses a hybrid scheme – simply put, the broker does not want your commission fees, but your whole account.
If you want to learn more about FIX API trading and how to use your MT4 strategies with FIX API, be sure to subscribe to our feed. We will be happy to send you a few videos that will provide further information.