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Electronic Trading -- How It Works

|Includes: QQQ, SPDR S&P 500 Trust ETF (SPY)

Electronic Trading - How It Works

In the previous post in our blog series on electronic trading, we explored how advisors can benefit from this streamlined process. There are multiple ways for an investment advisor to trade electronically with custodians and brokers. The most common method is to use FIX (Financial Information eXchange). FIX is a communication protocol, or a format for exchanging information, that was specifically designed for trading. It is a bit like an automated instant message to your custodian. For example, an RIA will send an electronic message to a custodian, they receive it instantly, execute the order in milliseconds, and reply to you with the order details, including the price. For more information about FIX look here

Many RIAs are not aware of the electronic trading options available at their custodians. Nearly every large custodian and brokerage supports ETF and equity trading electronically using the FIX protocol. Using FIX, RIAs can execute trades with a custodian's trade desk electronically in milliseconds. This process is a much faster alternative to a uploading a file with orders and allocations to a custodian's website.

The recent denial of service attack on the Charles Schwab website makes the case that even the biggest sites are vulnerable to temporary outages. The best way to mitigate this risk is to have more than one option for trade execution.

Historically FIX was only available to firms using costly order management systems. Now, Atom Align clients of all sizes can trade electronically and achieve straight-through-processing from end to end.

Here is a typical workflow for an Advisor. Using all of the automated options available this process can take less than 5 minutes to complete:

  1. Users will rebalance a single security, account, household, model, or group of accounts
  2. All of the recommended trades are created and organized into block orders automatically where they can be approved. Users can also review trade details for tax affects, cash results and other details.
  3. The orders are selected, executed, and filled in seconds
  4. Lastly allocation messages are sent to each of custodians with the click of a button

With a seamless process for trading Advisors can be more responsive to market conditions and are better able to manage client accounts. Sign up for a demo and see the benefits first hand.