Thursday, November 19, 2015

A gentle introduction to java based electronic trading using FIX

I recently had the chance to work on a java based web application which provides electronic trading functionality using FIX(Financial Information eXchange). Wanted to share some of my experiences in this post :-)

Lets start out with the basics, though...

Electronic Trading the big picture, where does FIX fit in?
Trade life cycle can be divided into the following phases:
  1. Pre-Trade - analytics and price discovery
  2. Trade - order creation and execution
  3. Post Trade - clearing, allocation and settlement
  4. Post Settlement - risk mgmt, profit/loss account, position monitoring
FIX is mostly used in the Phases 1 and 2, whereas SWIFT is used in Phase 3 and beyond.

FIX protocol features like quote(RFQ), Indication of Interest (IOI) are used for price discovery, whereas features like DealAtQuote, Market Order and Limit Order are used for order placement.

How FIX is relevant  | Who Uses FIX
FIX® has become the way the world trades. Virtually every major stock exchange and investment bank uses FIX for electronic trading, alongside the world's largest mutual funds, money managers and thousands of smaller investment firms. Leading futures exchanges offer FIX connections and major bond dealers either have or are implementing them. Identifying an exact number of users is impossible, as FIX is a free and open standard, but it is very clear that the world’s financial community now speaks FIX.

Enterprise apps - Using Open Source QuickFixJ, the java library for FIX
Most enterprise applications, act as the BUY side of FIX protocol ie these applications place trade requests, to the SELL side of FIX, which is provided by vendors like winterflood, which have connectivity to stock markets, traders, etc and enterprise applications require to, send FIX messages to vendor's FIX engine.

In order to be able to interface with a FIX engine, of a provider like winterflood, using java code, there is an excellent open source framework called QuickFixJ. This is a java library which can be used as a JVM embedded FIX engine. Detailed documentation can be found at their website.

In following article, the java code I will  be show-casing code that uses the QuickFixJ APIs

Intro to common FIX flows
First, your application needs to communicate with a vendor who provides electronic trading services. Such vendors have a FIX server running with electronic trading capabilities and DMA(direct market access).

The whole idea is that our application will send a FIX message asking for a trade to be executed, to the vendors FIX engine. The vendor service will execute the trade and send back a response to our application. The responses are always asynchronous and can come in delayed or not at all.

Such trade instructions between our application and vendor FIX engine, using FIX messages format and protocol are called logically as FIX trade flows.

There are typically huge number of trade flow, sub-flows, combinations, varied responses, but the trick is to narrow down the number of trade flows by pre-deciding with vendor, which trade flows we will consider and also clamp down on the possible requests and responses.

This logical ring fencing of the possible trade flows will ensure, you can provide robust, deterministic functionality related to electronic trading, in your own application.

Quote with Deal At Quote Order
The most common trade interaction which can be done during market hours is the Quote and Deal functionality.

As per this trade flow, user sends out a quote request, for a ticker/symbol in the form of a FIX Message of type R. Asynchronously, but within a few milli seconds, a Quote response is received by the application. This quote response contains the market price of the ticker/symbol as a quote. This price in quote is applicable only for a a few seconds say for 30 seconds

The user now can send another FIX message within 30 seconds, asking to book order for above mentioned stock, with certain number of shares at the price agreed upon in the quote above

A more interactive and verbose narrative is mentioned below, along with the sample FIX messages, good luck deciphering :-)

Quote and Deal
Quote (R) - give me quote for stock with symbol VOD
<20150923-07:47:20, FIX.4.2:APP->VEND, outgoing> (8=FIX.4.2 9=194 35=R 34=2 49=APP 50=D2C 52=20150923-07:47:20.027 56=VEND 115=12345 131=1442994439993 146=1 55=VOD.L 48=GB00BH4HKS39 22=4 207=XLON 54=2 38=10 64=20150925 60=20150923-07:47:20.026 15=GBP 120=GBP 10=009 )

Quote Response (S) - Unit market price for VOD is 2.445 pounds, valid for next 30 seconds
<20150923-07:47:20, FIX.4.2:APP->VEND, incoming> (8=FIX.4.2 9=245 35=S 49=VEND 56=APP 34=2 52=20150923-07:47:20 131=1442994439993 117=X90FZI23H4719001 55=VOD.L 22=4 48=GB00BH4HKS39 167=CS 207=XLON 132=2.1325 134=3750 62=20150923-07:47:50 64=20150925 15=GBP 120=GBP 152=21.325 76=VENDOR 60=20150923-07:47:20 10=088 )

Deal At Quote (D) - book an order for VOD @ 2.445 pounds for 100 shares
<20150923-07:47:20, FIX.4.2:APP->VEND, outgoing> (8=FIX.4.2 9=238 35=D 34=3 49=APP 50=D2C 52=20150923-07:47:20.575 56=VEND 115=12345 11=1442994440565 15=GBP 21=1 22=4 38=10 40=D 44=2.1325 48=GB00BH4HKS39 54=2 55=VOD.L 59=4 60=20150923-07:47:20.575 63=3 64=20150925 117=X90FZI23H4719001 120=GBP 207=XLON 10=153 )

Exceution Report (8) for VOD @ 2.445 pounds for 100 shares with order status=FILLED
<20150923-07:47:20, FIX.4.2:APP->VEND, incoming> (8=FIX.4.2 9=359 35=8 49=VEND 56=APP 34=3 52=20150923-07:47:20 57=D2C 128=12345 1=WINTERG0 6=2.1325 11=1442994440565 14=10 15=GBP 17=b90FDI23H4720002 20=0 22=4 29=4 30=XLON 31=2.1325 32=10 37=b90FDI23H4720002 38=10 39=2 40=D 44=2.1325 48=GB00BH4HKS39 54=2 55=VOD.L 59=4 60=20150923-07:47:20 63=6 64=20150925 76=VENDOR 110=0 119=21.33 120=GBP 150=2 151=0 167=CS 207=XLON 10=244 )

other possible order status are: CANCELLED,  REJECTED, PARTIALLY_FILLED, etc

A quote can also be rejected, in which case a FIX message of type b is received by the application

Market Order
A market order is an order request which asks to buy/sell a certain number of shares of a symbol at the best price, at the time of request.

Market Order Request - 35=D order, 40=1 market,  54=2 sell, 55=VOD symbol, 38=110 num shares
<20150923-08:21:39, FIX.4.2:APP->VEND, outgoing> (8=FIX.4.2 9=234 35=D 34=2 49=APP 50=D2C 52=20150923-08:21:39.383 56=VEND 115=12345 11=1442996499366 15=GBP 21=3 22=4 38=110 40=1 48=GB00BH4HKS39 54=2 55=VOD.L 59=6 60=20150923-08:21:39.380 63=3 64=20150925 120=GBP 126=20150925-08:21:39.381 207=XLON 10=110 )

Execeution Report (8) with order status=FILLED
<20150923-08:21:39, FIX.4.2:APP->VEND, incoming> (8=FIX.4.2 9=357 35=8 49=VEND 56=APP 34=2 52=20150923-08:21:39 57=D2C 128=12345 1=WINTERG0 6=2.1325 11=1442996499366 14=110 15=GBP 17=0D0FDI23I2139010 20=0 22=4 29=4 30=XLON 31=2.1325 32=110 37=0D0FDI23I2139010 38=110 39=2 40=1 44=2.1325 48=GB00BH4HKS39 54=2 55=VOD.L 59=3 60=20150923-08:21:39 63=6 64=20150925 76=VENDOR 119=234.58 120=GBP 150=2 151=0 167=CS 207=XLON 10=120 )


Limit Order
A limit order is an order request which asks to buy/sell a certain number of shares of a symbol, when the stock price of the symbol, reaches a certain specified limit price.

Limit Order Request - 35=D order, 40=2 market,  54=2 sell, 55=VOD symbol, 38=110 num shares
<20151009-09:05:22, FIX.4.2:APP->VEND, outgoing> (8=FIX.4.2 9=206 35=D 34=229 49=APP 50=D2C 52=20151009-09:05:22.933 56=VEND 115=12345 11=1444381522933 15=GBP 21=2 22=4 38=110 40=2 44=7.885 48=GB0004082847 54=1 55=STAN 59=0 60=20151009-09:05:22.933 63=3 120=GBP 207=XLON 10=112 )

Exceution Report (8) with order status=NEW (Early ACK for limit order)
Limit orders will be filled only when limit is reached
<20151009-09:05:23, FIX.4.2:APP->VEND, incoming> (8=FIX.4.2 9=296 35=8 49=VEND 56=APP 34=229 52=20151009-09:05:23 57=D2C 128=12345 6=0 11=1444381522933 14=0 15=GBP 17=y6u2743950 20=0 21=2 22=4 29=1 31=0 32=0 37=y6u2743950 38=110 39=0 40=2 44=7.885 48=GB0004082847 54=1 55=STAN 59=0 60=20151009-09:05:23 63=3 120=GBP 150=0 151=110 167=CS 198=y6u2743950 207=XLON 10=065 )

when limit price is reached, Exceution Report (8) with order status=FILLED
<20151009-09:22:41, FIX.4.2:APP->VEND, incoming> (8=FIX.4.2 9=342 35=8 49=VEND 56=APP 34=268 52=20151009-09:22:41 57=D2C 128=12345 6=7.4 11=1444381522933 14=110 15=GBP 17=1040601735 20=0 21=2 22=4 29=4 30=XLON 31=7.4 32=110 37=y6u2743950 38=110 39=2 40=2 44=7.4 48=GB0004082847 54=1 55=STAN 59=0 60=20151009-09:22:41 63=3 64=20151013 76=VENDOR 119=814 120=GBP 150=2 151=0 152=814 155=0 167=CS 207=XLON 10=208 )



The Java Code (finally!)

Quote request and deal-at-quote
Writing java code to submit a quote is as easy seen below

quickfix.fix42.QuoteRequest quote = new quickfix.fix42.QuoteRequest(new QuoteReqID(quoteReqId));

//optionally set header feilds that your Trade Provider may require
quote.getHeader().setField(new OnBehalfOfCompID(ONBEHALF_COMP_ID));
quote.getHeader().setField(new SenderSubID(SENDER_SUB_ID));

//create a new 'repeating group' as per FIX spec
quickfix.fix42.QuoteRequest.NoRelatedSym group = new quickfix.fix42.QuoteRequest.NoRelatedSym();

group.set(new Symbol("VOD"));
group.set(new SecurityID(GB00BH4HKS39 )); //value of ISIN: GB00BH4HKS39
group.set(new IDSource("4"));  //4=ISIN, 2=SEDOL
group.set(new SecurityExchange("XLON"));  //stock exchange ID
group.set(Side.BUY);   //this could just as well be Side.SELL

group.set(new OrderQty(10));  //u can buy 10 shares of ticker VOD
//group.setField(new CashOrderQty(4000.00));    //u can buy shares worth 4000 instead of 10 shares

group.setField(new SettlCurrency("GBP"));
group.set(new Currency("GBP"));
group.set(new TransactTime(new Date()));

quote.addGroup(group);

System.out.println("getQuoteForVEND FIX42 message "+quote);
Session.sendToTarget(quote, sessionId);

Deal@Quote
Writing java code to submit a Deal@Quote is as easy seen below
NewOrderSingle order = new NewOrderSingle(new ClOrdID(orderId),
new HandlInst(HandlInst.AUTOMATED_EXECUTION_ORDER_PUBLIC),
new Symbol("VOD"),
new Side(Side.SELL), new TransactTime(new Date()), new OrdType(OrdType.PREVIOUSLY_QUOTED));

//optionally set header feilds that your Trade Provider requires
order.getHeader().setField(new OnBehalfOfCompID(ONBEHALF_COMP_ID));
order.getHeader().setField(new SenderSubID(SENDER_SUB_ID));

order.set(new SecurityID("GB00BH4HKS39"));   //ISIN for ticker VOD
order.set(new IDSource("4"));  //4=ISIN, 2=SEDOL
order.set(new SettlmntTyp(SettlmntTyp.T_PLUS_2));

order.set(new SecurityExchange("XLON"));  //stock exchange london

order.set(new QuoteID(origQuoteId));  //original quote ID
order.set(new Price(request.getPrice())); //price of previous quote

//order.setField(new OrderQty(10)); //u can buy 10 shares of ticker VOD
order.set(new CashOrderQty(4000.00)); //u can buy shares worth 4000 instead of 10

order.set(new TimeInForce(TimeInForce.DAY));  //can be other values like
order.set(new SettlCurrency("GBP"));
order.set(new Currency("GBP"));

System.out.println("sending out DealAtQuotye FIX42 message "+order);


Session.sendToTarget(order, sessionId);


Market Order
Writing java code to send a market order is as easy as seen below

NewOrderSingle order = new NewOrderSingle(new ClOrdID(orderId),
new HandlInst(HandlInst.AUTOMATED_EXECUTION_ORDER_PUBLIC),
new Symbol("VOD"),
new Side(Side.SELL), new TransactTime(new Date()), new OrdType(OrdType.MARKET));

//optionally set header feilds that your Trade Provider requires
order.getHeader().setField(new OnBehalfOfCompID(ONBEHALF_COMP_ID));
order.getHeader().setField(new SenderSubID(SENDER_SUB_ID));

order.set(new SecurityID("GB00BH4HKS39"));   //ISIN for ticker VOD
order.set(new IDSource("4"));  //4=ISIN, 2=SEDOL
order.set(new SettlmntTyp(SettlmntTyp.T_PLUS_2));

order.set(new SecurityExchange("XLON"));  //stock exchange london

order.setField(new OrderQty(10)); //u can buy 10 shares of ticker VOD
//order.set(new CashOrderQty(4000.00)); //u can buy shares worth 4000 instead of 10

order.set(new TimeInForce(TimeInForce.DAY));  //can be other values like
order.set(new SettlCurrency("GBP"));
order.set(new Currency("GBP"));

System.out.println("sending out MarketOrderForVEND FIX42 message "+order);
Session.sendToTarget(order, sessionId);


Limit Order
Writing java code to send a Limit order is as easy as seen below.
Only change from above code is using the OrdType.LIMIT

NewOrderSingle order = new NewOrderSingle(new ClOrdID(orderId),
new HandlInst(HandlInst.AUTOMATED_EXECUTION_ORDER_PUBLIC),
new Symbol("VOD"),
new Side(Side.SELL), new TransactTime(new Date()), new OrdType(OrdType.LIMIT));



Using the above concepts, frameworks and codes, provides some idea of the  electronic trading functionalities, that can be integrated into your java based enterprise application.

Cheers!

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