APIs: The driving force behind innovation and growth in FX trading

The FX market has witnessed a substantial increase in the number of trading venues and APIs have become indispensable for accessing a broader range of liquidity sources efficiently compared to traditional user interfaces. This not only enhances liquidity management but also simplifies the overall trading process.

“APIs are evolving beyond traditional FIX-based streaming of market data and order execution to complex pre-trade and post-trade workflows,” explains John Stead, director of sales enablement and marketing at smartTrade Technologies. “Their use is particularly prominent among corporates and commercial customer segments where there is a rapid adaptation to sophisticated technology for evolving hedging and cash management needs.”

Market advancements

This includes integration with non-conventional FX liquidity providers that offer payment rails integration, and embedding hedging and cash management workflows within ERP systems. Such advancements necessitate not only the evolution of APIs available on distribution channels for market makers but also the development of new pricing algorithms and risk management strategies.

“Quant trading firms require access to normalised pricing across asset classes so that correlations are detected in real time and can be fed into pricing and hedge decisions,” explains Cormac Walsh, head of product for Barracuda FX, part of the ION Markets (FX) product suite.

One of the key ways that financial markets participants – including those in FX – are evolving is the increasing shift from the traditional ecosystem of physical trading venues, broker and dealing desks, and bilateral client trading relationships to a digital-first trading landscape.

At the same time, API technologies enable greater FX market democratisation with respect to smaller financial institutions and retail traders by supporting faster, more efficient integrated connectivity to multiple liquidity channels, venues and trading counterparties.

API connectivity has long been the underpinning technology and facilitator for FX algo trading strategies, optimising the ability to capitalise on market opportunities while managing risk explains Tim Carmody, CTO IPC Systems.

“The advent of single, multi-asset APIs is a natural progression with respect to connecting the buy side more efficiently to multi-venue, multi-market liquidity channels, including crypto asset exchanges,” he says,

In a market increasingly demanding ‘any time, any place, any device’ trading connectivity, as well as ease of access to trading platforms and systems, greater system and workflow interoperability are increasing imperatives in the front to back post-trade environment for FX.

“The real beauty of APIs is that beyond their intrinsic value in faster, better and cheaper connectivity, they sit within a middleware layer which means that you don’t have to keep making expensive changes to the systems themselves, just the proxy in the middle – which makes for much simpler maintenance in the long term,” adds Carmody.

Eliminating fragmentation

APIs enable participants to look at how new technologies can augment existing infrastructures and systems in the end-to-end transaction lifecycle. Deployed in association with microservices frameworks, APIs are very effective tools in mitigating the traditional challenges of maintaining legacy systems and outdated infrastructures, and eliminating the fragmented business lines, data silos and cumbersome workflows that stifle productivity and agility.

API development can be made easier by converting monolithic applications into containers of microservices aligned with different technology stacks within an organisation.

“In addition, by accessing the market through an already established ecosystem of connected participants, new FX market participants can more quickly reach a broader and deeper community, lowering barriers to entry,” says Carmody. “As such, firms can deliver new products to market more quickly.”

The rise in algorithmic trading and the expansion into multiple asset classes – including cryptocurrency – is having a significant influence on demand for API services. However, Stead says there is not a strong push for a single, all-encompassing API that meets every trading need across these diverse areas.

“The primary reason for this stems from the high variability inherent in different asset classes, which includes differences in the volume of data, trading protocols, and the level of robustness expected,” he says. “This variability makes it challenging to create a one-size-fits-all API solution without compromising specific asset class requirements.”

Additionally, there is a strategic desire to avoid a single point of failure. Relying on one comprehensive API for all trading activities increases risk since if it failed it could disrupt all trading operations across multiple asset classes simultaneously. This risk encourages firms to prefer multiple specialised APIs that can be integrated but remain distinct in their operation.

“Despite these complexities, the implementation of APIs remains relatively low cost – especially when compared to the potential benefits of enhanced trading efficiency and access to a broader range of markets and liquidity,” says Stead.

Diverse demand

As the need for API integration rapidly expands across new client segments, there is a growing demand for a variety of API options to meet diverse internal and external integration needs. The majority of traditional trading venues and many customers still use FIX APIs, which are highly valued for their reliability and efficiency in fast paced trading environments like FX spot markets.

However, Stead notes that demand for RESTful APIs is increasing as these allow for easier integration of microservices within existing workflows, addressing a broader range of use cases with less stringent latency requirements.

“REST APIs are typically preferred for accessing static data and have initially been used in some trading scenarios, such as in the crypto markets,” he explains. “However, due to challenges such as maintaining order states and managing high transaction volumes, many crypto venues that initially offered REST APIs are now also providing or moving towards supporting FIX protocols, which are better suited to handling real time, high frequency trading data.”

In terms of the specific benefits of FIX APIs for firms looking for more cost effective control over their trading, Walsh refers to the FIX protocol providing a level of standardisation which means that the incremental cost of adding a new venue over FIX is less than over a proprietary protocol.

“APIs are well established within FX trading so that the post-trade process is fully automated,” he says. “Trade APIs have been updated in recent years to cater for all emerging regulatory identifiers and we would expect these tools to be designed to continue to need to change given regulatory evolution.”

Stead observes that FIX APIs offer several distinct benefits that make them particularly attractive for firms seeking cost effective control over their trading operations.

“With a proven track record of over 30 years in capital markets, they are a mature technology that has become a well-integrated and highly reliable component of financial trading infrastructure,” he says. “Their durability and effectiveness in a variety of market conditions make them a trusted choice for firms of all sizes.”

Expertise availability

The widespread expertise available due to the extensive use of FIX APIs allows for easier adoption and integration into existing systems. This broad knowledge base helps reduce training costs and lowers the barrier to entry for new staff and firms entering the market, facilitating the development of powerful trading solutions and customisation of existing workflows.

“FIX APIs also come with a dedicated financial data model that includes asset-specific information, predefined workflows and regulatory data – all essential for the smooth operation of financial transactions,” says Stead. “This standardised model greatly enhances operational efficiency and reduces the need for developing custom solutions.”

Moreover, the safety and security in the transmission and reception of data are paramount in trading and FIX APIs excel in providing secure communication channels. This is critical for protecting sensitive financial information and ensuring that transaction commands are executed reliably, maintaining the integrity and confidentiality of financial transactions.

“Overall, FIX APIs provide a robust framework that supports cost effective trading operations by leveraging their historical reliability, widespread expertise, tailored financial data handling, and stringent security measures,” adds Stead. “These features collectively empower firms to maintain precise control over their trading activities while minimising overheads.”

APIs are essential in developing advanced liquidity optimisation architectures, enabling firms to access both traditional and emerging liquidity sources (such as new crypto markets requiring non-FIX protocols) and integrate sophisticated trading strategies.

“Many firms leverage APIs to expose internal services that control algorithms and integrate them into optimised ecosystems where AI-powered analytics can interact with aggregators or pricing engines,” says Stead. The shift includes building smart skewed swap pricing, published internally via APIs, enhancing trading precision.

“Firms can deploy these APIs through custom development for tailored functionality or use no-code platforms and AI-assisted tools for ease of use and rapid deployment,” he continues. “Both methods support dynamic responses to market conditions, effective risk management, and improved trading performance, highlighting the critical role of APIs in modern trading infrastructures.”

Processing power

Stead observes that APIs are playing a pivotal role in enhancing the efficiency and accuracy of post-trade and back office processing.

“By orchestrating complex processes and automating interactions between market participants, APIs help reduce costs and enable real time processing,” he explains. “They are commonly used for pre- and post-allocations, transmitting detailed information to surveillance and regulatory systems, and consuming and relaying settlement details to back offices, significantly reducing the likelihood of breakages in automated flows.”

This automation minimises operational risks and saves time. Furthermore, APIs facilitate the normalisation of multiple data flows upfront, ensuring that once integrated the processing of trades becomes almost instantaneous and error-free. This is critical for reducing human errors that occur in manual processes and can lead to discrepancies and delays.

“Additionally, a trend we have observed is that sales and middle office staff are increasingly performing post-trade actions such as edits, amendments and splits in front office systems, which are all efficiently managed via APIs to ensure seamless message flow to all downstream systems,” says Stead.

“Overall, by automating complex and time consuming tasks, APIs are becoming indispensable in financial markets, helping institutions improve compliance, reduce operational risks, and enhance market liquidity.”

Strategic enablers

Stead agrees that it would be accurate to describe APIs as strategic enablers that have the power to reshape the FX trading landscape, particularly by enhancing the customer experience.

“APIs have been integral to the FX industry for over 30 years, consistently driving advancements in trading technology and infrastructure,” he says. “Their ability to integrate and adapt makes trading platforms more responsive and flexible, quickly adjusting to market changes and trader demands.”

Carmody says this is particularly true with respect to enhancing the customer experience in terms of ease and speed of connectivity and communications, market access and data exchange.

“Recognising this, we have already consolidated around an entirely API-first technology and open platform enablement strategy that leverages other technology paradigms including cloud and AI to drive continuing service efficiencies,” he says.

Walsh agrees that APIs could be described as strategic enablers that have the power to reshape the FX trading landscape on the basis that client and bank workflows will become increasingly automated using data-driven decisions.

According to Stead, the future points towards more APIs, reflecting the ongoing trend towards increased digitisation and connectivity in the FX market.

“As trading systems grow more complex and interconnected, the need for APIs that can communicate across platforms and services increases,” he adds. “This not only streamlines operations but also fosters innovation and enhances customer engagement.”