Understanding Order Management Systems
Order management systems designed exclusively for trading digital assets connect to cryptocurrency exchanges to provide services targeted to the global cryptocurrency industry.
An order management system (OMS) in the financial markets automates and integrates tasks to process the lifecycle of a trade order into a single system. Originally, these systems were created to address delays and a lack of coherence in traditional trading organizations.
OMS software has evolved over time to include more sophisticated features and services, including the ability to enable cryptocurrency trading.
- Understanding Order Management Systems
- Order Management Systems: Background
- Recent Developments
- An Order Management System for Cryptocurrencies
- Evaluating Cryptocurrency Order Management Services
Understanding Order Management Systems
An order management system (OMS) in the financial markets automates and integrates tasks to process the lifecycle of a trade order into a single system.
Routing the order to an exchange, finding an acceptable counterparty, and reconciling the order in accounting accounts are some of these activities. OMSs operate as transportation rails connecting different components of a market’s infrastructure, delivering liquidity and predictability to transactions.
Depending on who uses them, order management systems can fulfill a wide range of functions.
Individual traders, for example, use an OMS to place buy and sell orders; broker-dealers use an OMS to provide trading services to their customers; exchanges use OMSs to source liquidity; and market makers use OMSs to track and arbitrage their holdings across several venues.
Order management systems for cryptocurrency markets provide the same basic functions as traditional order management systems, with the addition of crypto-specific features such as wallets and custody.
Order Management Systems: Background
Originally, OMSs linked data and procedures for a trading firm’s three divisions: front, middle, and back offices, which are in charge of producing, executing, and completing trades.
These divisions functioned as silos in the 1980s, each with its own processes and systems, all of which were managed by different people.
This lack of coordination resulted in delays and bureaucratic issues, which hampered trading firms’ ability to react quickly to market volatility. Because their systems could only clear ticket backlogs in a sequential order, traders were frequently forced to wait before making what should have been timely strategic moves.
Order management systems were created to address challenges like this. The OMS interface of a trading firm hides a complex web that affects a variety of parties, from customers to trading exchanges and institutional investors.
Trade order management systems connect the purchase side — often fund managers tasked with selecting high-alpha securities for their portfolios — to the sell-side — typically investment bank trading floors.
Financial Information interchange (FIX) and WebSocket technology standards provide standardized communication and data exchange between multiple systems, as well as quick and concurrent transaction execution.
OMS software has evolved over time to include more advanced features and services, such as detailed analytics, real-time trading and research snapshots, and the ability to test trading strategies. Trading organizations might get a competitive edge from a speedy and efficient OMS since it allows them to quickly enter and exit positions.
An Order Management System for Cryptocurrencies
Individual traders, who perform the majority of crypto trading, must transact utilizing a somewhat underdeveloped infrastructure because there are few significant investing businesses in the bitcoin ecosystem.
Because of the worldwide nature of cryptocurrencies, exchanges are located all over the world and are open 24 hours a day, seven days a week. Counterparties for bitcoin trades can be difficult to come by, and liquidity positions can differ between trading platforms.
Crypto traders frequently create accounts on various exchanges in order to increase their chances of making a profit. However, managing these accounts one by one rather than being connected to several or all of them at once via an OMS can be time-consuming and complex.
To collect, consolidate, and calculate their transaction data across platforms, crypto traders must set aside more time (and expense). Of course, in a volatile trading market, this process is only slowed.
Most OMSs do not support cryptocurrency trading, with the exception of a few popular OMSs that provide bitcoin futures trading at the Chicago Mercantile Exchange (CME).
Rather, cryptocurrency entrepreneurs have created OMSs that are solely for crypto trading.
These systems connect to crypto exchanges all around the world and provide a set of services that are specialized to the sector. They might, for example, provide free crypto research papers and wallet services, or allow consumers to stake or deposit their crypto to earn income.
Evaluating Cryptocurrency Order Management Services
Popular OMSs are unlikely to integrate bitcoin trading into their service offerings until the cryptocurrency market infrastructure is fully developed. If you’re looking into OMSs for the crypto market, these are some things to think about:
Speed: Prices of cryptocurrencies can be more volatile than those of traditional assets. As a result, a cryptocurrency trade order management system must be able to keep up with price changes and show them with minimal latency, allowing traders to react accurately and rapidly to market volatility.
Connections to Exchanges: At the time of writing, there are more than 200 bitcoin exchanges operating throughout the world. Because bitcoin values might differ between platforms, these exchanges provide traders with an arbitrage opportunity. For crypto traders to properly execute their arbitrage tactics, a robust cryptocurrency OMS should link to the most liquid and well-known exchanges.
Regulatory Compliance: The OMS should be able to generate accurate and timely trading reports and other relevant regulatory papers, allowing crypto traders to stay compliant with crypto rules in their jurisdictions.