Understanding an Order Management System (OMS)
An order management system is a software system that facilitates and manages the execution of trade orders. In the financial markets, an order must be placed in a trading system to execute a buy or sell order for a security. A trading order typically contains the following information:
- Security identifier (ticker)
- Order type (buy, sell, or short)
- Order size
- Order type (e.g., market, limit, stop, etc.)
- Order instructions (e.g., day order, fill or kill, good-till-canceled, etc.)
- Order transmission (broker, ECN, ATC, etc.)
An order management system executes trades through a software system using the FIX protocol. FIX, or Financial Information eXchange is an electronic communications protocol used to share international real-time exchange information related to the trillions of dollars of securities transactions and markets.
However, communicating transactions can also be done through the use of a custom application programming interface (API). The FIX protocol links to hedge funds and investment firms to hundreds of counter parties around the world using the OMS.
There are many products and securities that can be traded or monitored with an order management system. Some of the financial instruments traded using an OMS include:
- Fixed income products such as bonds
- Commodities such as crude oil or copper
- Derivatives, which might consist of options on interest rates and currencies
Typically, only exchange members can connect directly to an exchange, which means that a sell-side OMS usually has exchange connectivity, whereas a buy-side OMS is concerned with connecting to sell-side firms. When an order is executed on the sell-side, the sell-side OMS must then update its state and send an execution report to the order’s originating firm.