on April 06, 2018 Trading & Investing Fintech Innovation

How APIs are revolutionising the broking industry

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Fintech. Innovation. Words that are often used in the same sentence, often by yours truly. Each time I delve into a new part of the fintech landscape, I can’t help but marvel at the changes to this industry which, not all that long ago, was driven by pen and paper. Many of the innovations I have written about over the past year or so – robo advice, social investing, the round-up app Acorns – all have one thing in common. APIs. If you have ever marvelled at a fax machine (just how does that page I send here get replicated there?) then APIs will really blow you away.

What is an API?

Starting with the basics, an API – or Application Program Interface – is a set of clearly defined methods of communication between various software components. That might not mean much to you (didn’t mean a lot to me) so let me borrow a definition and analogy from this YouTube clip– it’s the simplest explanation I’ve been able to find.

 “The API is the messenger that takes requests and tells the system what you want to do…and then returns the response back to you”

Picture yourself in a cafe. The waiter takes your order to the kitchen, tells the ‘system’ what to do…then brings the completed order back to you. The waiter is a human API, the conduit or messenger, that tells systems what to do, and then returns the relevant information – or lunch!

In trading terms, an API is an interface that allows one software program to work with, or talk to, another; it enables an investor’s or business’s software to interface with a platform – such as OpenMarkets – that then connects with the market, executes a trade and returns real-time information. Trading APIs have multiple features that facilitate information sharing, including real-time information, trade execution, and confirmations.

When it launched, OpenMarkets recognised an imminent trend – integration. Not every business wants to give clients and third parties the keys to the toolbox, but OpenMarkets recognised the possibilities for traders and other like-minded business that open APIs could bring. It must have been a clever idea – it’s not only a successful niche for OpenMarkets, other brokers are jumping on board.

Traders seeking APIs for personal algos 

What does every trader want? Orders in real time. When do they want it? Now! That is, information in real time!

APIs enable a trader to write their own software programs or computer algorithms; it may be based on varied parameters, such as a research methodology, market depth, volume or price. This software ranges from the extremely complex through to simple algorithms using an Excel spreadsheet.

This individual program integrates with OpenMarkets’ platform via an open API. When the software is triggered – a price reaches a new low, trading volume in a specific stock increases or decreases, a prime ratio hits a specific target – orders are automatically fired off in real time. The order is executed, and the investor receives confirmation. Depending on stock availability, this can happen in seconds.

Apparently, it’s not rocket science – if you can write code, you can plug into an API and set your own investment parameters. Ten years ago, you needed to be a big investment bank for this level of personalised trading; now a home trader can write their own systems and connect to the market via an API.

“What if something goes horribly wrong?” I hear you ask.

Never fear, there is a test environment provided by OpenMarkets, which allows the trader to test ideas in the ASX test market. If it doesn’t give you the right results, rebuild and test again. Once you’re confident that the software works to your specifications, you can move into production in the real market.

This is a niche for OpenMarkets – other online brokers don’t want traders writing their own software; most would rather charge for the use of their proprietary research, algorithms or trading advice.    

Financial services trading via APIs

OpenMarkets works with a range of business partners. From the outset, it took the view that collaboration with other fintechs – and even competitor businesses – was the way of the future.

Allowing API connectivity to its trading platform allowed several fintechs to get up and running quite inexpensively; using APIs, they were able to maintain control of the user experience while providing real time market trading.

"APIs make the integration between a third-party platform and OpenMarkets’ brokerage platform a seamless experience."

It enables creativity and allows companies to put their energies into building interactive websites, tools and creative client experiences. It presents the opportunity for those businesses to innovate and differentiate from their competitors.

If using traditional broking platforms, the user experience is generally controlled by the platform provider, many of which are competing for a share of that investor’s wallet. Think of a broking platform provided by a big four bank – they want the client’s eyeballs on mortgage rates and ETFs and term deposits and anything else they can cross sell. That’s where OpenMarkets has a great point of difference – its happy for large companies to embed their APIs in their website – it wants the trades, it’s not trying to cross sell other products.

To make life easier for third party businesses, OpenMarkets recently built an account opening API, which has been taken up by larger firms with volume trades. No one likes paperwork, and anything that can save time and effort is always appreciated. APIs are all about innovation, changing way things are done to make the process more timely and efficient.

Why does OpenMarkets promote open APIs?

OpenMarkets is currently the only brokerage platforms offering streaming real-time trading APIs and the only HIN broker that promotes open APIs to retail traders. It’s a successful niche for OpenMarkets. While other broking business may offer some APIs, they generally are less sophisticated or have more parameters around who can integrate and what they can do.

"Open APIs means it’s easy for third parties to integrate with OpenMarkets – and in this era of integration, even competitors work together."

For example, one of the big four banks is working with OpenMarkets using APIs to enhance connectivity with its cash product.

For OpenMarkets, the ‘build it and they will come (and integrate)’ approach has worked well. For a business focused on the trade, its open approach has drawn traders and a range of fintechs to its platform and, as a result, has experienced substantial growth over the past 5 years.

The future of APIs

This is the world of API 1.0 – where can it go from here? Well, anywhere! Increased market demand will result in growth and development. Already there’s growth in inbound API trading where big volume day traders based anywhere in the world utilise FIX APIs and, using a proprietary front end (such as one focused on day trading the Australian market), plug in to execute via OpenMarkets.

Once people start to get creative, the potential for new product development is enormous. When the technology, and its possibilities, is better understood, we’ll see a plethora of new products and services emerge. It’s one of those things that is sometimes difficult to see from the starting blocks, but once API 2.0 is here, we’ll be living (and trading) in a truly connected and integrated world. 

Visit openmarkets.com.au/APIs for more information.



 General Advice Warning
This information is current as at that date of the document or information is provided or presented unless otherwise specified and is provided by OpenMarkets Australia Ltd (ABN 38 090 472 012, AFSL 246705 (OpenMarkets).  The information is intended to be general information only and not advice specific to any person.  Each person should consider the appropriateness of any material presented having regard to their own circumstances and the information provided does not take into account the particular investment objectives, financial situation or investment needs of any person.  OpenMarkets does not warrant the accuracy of, nor accept any responsibility for any information provided.  Where examples, hypotheticals or case studies are used, they are used for illustrative purposes only.   If the information includes statements of opinion, forward looking statements, forecasts or predictions based on current expectations about future events and results, any such statements are subject to change and actual results may be materially different from those shown.   

 

Tracey Franks

Tracey Franks is one of OpenMarkets' regular blog contributors and content writers, who has worked in financial services for over 20 years in businesses spanning stockbroking, funds management, research and consulting, as well as financial planning. When not writing about finance-related topics, Tracey is working on her first novel.