Best execution for digital assets – what you need to know

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We have all been there — you unpack your bag in the hotel and try to plug in your phone to charge after the trip, only to realize that it doesn’t fit in the socket and you forgot to bring an adapter. The digital asset landscape is like a hotel room where every socket is a different shape and none of them use the same voltage. This lack of common standards makes best execution a complex challenge, but there are solutions.


Since the late 1990s, the structure of trading markets has become increasingly complex and diffuse. It is now common for a single financial product to be traded through multiple different venues, so decisions about order routing have become crucial. As a result, the concept of best execution has become cemented in financial regulation globally.

Traditional Assets – new reporting obligations 

In the EU, the most recent major legislative change in this area came in 2017 through the enactment of the second Markets in Financial Instruments Directive (MiFID II). The goal was to bring greater transparency to the ways in which investment firms execute orders on behalf of clients. MiFID II mandates a range of new reporting obligations for investment managers and firms, including an annual report analyzing the execution quality of all the execution venues they have used. Another key requirement is to publish yearly reports on the Top 5 execution venues used for each class of financial instrument, further subdivided by client type. One of the main upshots of these changes for trading firms is that execution data from multiple venues has to be monitored, collated and stored in a way that will make it easily accessible for analysis reporting. For traditional assets, this data exchange takes place over the Financial Information eXchange (FIX) protocol, which is the internationally recognized standard for exchanging this type of data.

Digital assets – no easy FIX 

So, what makes digital assets different when it comes to best execution? The first major distinction is the market structure. The digital asset market has no commonly accepted principal digital asset exchange in each territory. While SIX is Switzerland’s principal stock exchange for traditional assets, for example, no equivalent body exists for digital or crypto assets. Instead, many global exchanges like Binance and Coinbase compete for dominance while local firms (like Bitcoin Suisse and Taurus) serve as brokers. The lack of a principal exchange and the resulting fragmentation of liquidity across multiple competing exchanges adds an extra layer of complexity when trying to ensure best execution for digital asset transactions. The second major difference is in terms of communications standards. There is currently no commonly implemented communications protocol for exchanging digital asset market and trading data. Typically, market makers, liquidity venues, exchanges and brokers provide application programming interfaces (APIs) to exchange this data. However, the underlying protocols and methods of implementation vary from one API to the next. Most providers use the REST and WebSocket protocols to implement their APIs, but there are no common rules for how these APIs should work. Thus, even if two exchanges both use the same protocols, the exact commands used to interface with them will differ. This is further compounded by the tendency for digital asset exchanges to be less reliable than their equivalents in the traditional asset space. Unscheduled downtime can lead to breaks in the flow of information, potentially resulting in gaps in execution data. So, returning to our analogy of the hotel room with many different sockets, in order to use all these different venues, you need many different adapters. As a trading firm attempting to ensure best execution, this means you will need to invest a lot of time and money into integrating each API into your core system manually, maintaining support for it, and detecting venue-side downtime and reconciling order data in the aftermath. This mammoth task is made even more challenging by the fact that these APIs are often poorly documented and that the technical support from the underlying venue is inadequate. But of course, gaining reliable access to execution venues is just the beginning. To truly ensure best execution, you need to analyze all the data you receive from these venues and allocate orders as efficiently as possible to those that offer the best prices at any given point in time. Attempting to do this manually would be an unreasonably arduous task, so this is where execution algorithms and smart order routing come into the picture. If APIs are like the roads of the digital asset transport network, execution algorithms and SOR are like the traffic control system, deciding when each order can move and what route it takes. AlgoTrader’s purpose-built order and execution management system (OEMs) includes a range of advanced execution algorithms including TWAP, VWAP, Sniper and Iceberg in addition to providing support for proprietary algorithms.

AlgoTrader – trade throughout the entire digital asset market via a single FIX connection 

AlgoTrader bridges the technological divide between digital and traditional assets. Our team consists of senior engineers and developers who combine technical expertise with decades of experience in building institutional trading infrastructure in the traditional financial world. We are dedicated to building and maintaining secure and reliable adapters to an ever-increasing range of liquidity venues covering both digital and traditional assets. We have invested thousands of hours into dissecting and understanding the underlying APIs through a combination of skill, trial and error, and perseverance. In fact, we have amassed so much experience in dealing with the plethora of connectivity issues that digital asset exchanges face that we can anticipate API bugs and technical issues before they happen and deal with them in advance, leaving our customers with a seamless trading experience. Are you one of the growing number of institutional traders seeking to incorporate digital and crypto assets into your portfolio? Save yourself time and headaches with AlgoTrader. Book a demo today.

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