What Is an API and How Do You Use It To Trade?


An application programming interface (API) is a software interface that enables computers to communicate and carry out operations with one another. You can think of it as a computer-based language translator.

Summary

An application programming interface (API) is a software interface that enables computers to communicate and carry out operations with one another.

APIs operate as computer-to-computer code translators, allowing computers to perform increasingly complicated jobs at hyperkinetic speeds that humans can’t match. Crypto exchanges would be unable to give customers with the depth and breadth of services they do if API trading were not available. Algorithmic and AI trading strategies would be impossible to implement without APIs.

Contents

An application programming interface (API) is a software interface that enables computers to communicate and carry out operations with one another.

You can think of it as a computer-based language translator. In certain cases, an API connects a trader’s account to a broker’s automated trading system to execute trades quickly and effectively, as well as to do algorithmic (algo) or programmable trades.

APIs are becoming more popular as traders grasp the advantages of automated trading systems, which allow them to hedge future bets and eliminate human trades. The essential features and benefits of a stock trading API or a bitcoin trading API are the same.

What Can an API Do?

The API of a cryptocurrency exchange functions as a middleman between you and your broker, allowing you to carry out a variety of transactions. Buying and selling assets, accessing real-time market data, and performing more advanced trading methods are just a few examples.

APIs are used by cryptocurrency exchanges to allow clients to trade cryptocurrency pairings and conduct basic to high-performance trading through premium trading platforms. Advanced charting, numerous order types, auctions, and block trading are among the services available to experienced day traders.

Top APIs for Crypto Traders

Some of the top crypto exchanges that allow API trading are Gemini, Binance, Bittrex, Bitfinex, Coinbase, and Kraken. They provide numerous ways to connect through popular API protocols such as REST, Websocket, and FIX for algorithmic traders with bespoke programs.

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Who Can Benefit From API Trading?

APIs can help everyone who is interested in trading. Traders can utilize APIs to trade stocks, cryptocurrency, commodities, and almost any other asset imaginable.

Traders who want to create their own trading methods can employ specialist API protocols like MetaTrade, which caters to currency traders, or charting and futures systems like AmiBroker and NinjaTrader, which cater to charting and futures traders, respectively.

Those who want to create their own trading strategies might do so using coding software like Python, C++, or Java.

Algorithmic Trading: Welcome to Robo-Trades

Algorithmic, or algo, trading is the next step of API trading, in which traders specify a set of instructions or sophisticated mathematical equations (algorithms) for computer software to follow. Algorithmic trading can provide large gains at far faster rates than any human-run trading method.

Algo trading, sometimes known as “black box” trading in reference to highly guarded and proprietary trading tactics, has become so popular that it now accounts for nearly 80% of all U.S. equities trading. Algorithmic trading has also paved the way for high-frequency trading (HFT).

HFT, as the name implies, entails the quick execution of enormous orders – faster than the blink of an eye — utilizing powerful computer algorithms.

Basic Algo Trading Strategies

A number of algorithmic trading strategies are based on pre-determined price, volume, or market volatility patterns, among other factors. Some of the most fundamental techniques are listed below:

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Trend following

Following trends in moving averages, which measure an asset’s price over time, most often the past 50 and 200 days, is the simplest algo trading method.

Traders can also pay attention to channel breakouts, which occur when an asset breaks out of a rising or falling pattern known as a channel, or other technical indicators such as the relative strength index (RSI), which tells them if an asset is overbought or oversold.

Arbitrage opportunities

Some traders profit from price differentials between exchanges. Arbitrage is the term for this technique. Your algo trading program can be programmed to buy an asset at a cheap price on one exchange and sell it at a higher price on another.

Index fund rebalancing

You might try to make money by copying how the pros rebalance their portfolios or move assets around for more profit. You can keep track of how index funds, which are investment vehicles that replicate a benchmark such as the S&P 500 or the Nasdaq Composite, rebalance their positions on a regular basis.

Depending on how many stocks an index fund shuffles around, algo traders who watch such moves can earn each trade.

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Will Artificial Intelligence (AI) Replace Traders?

Artificial intelligence and its expanding involvement in automated trading are inextricably linked to algo trading. You specify certain parameters for a computer to execute, such as price, volume, volatility, and so on, and then utilize AI machines to track the performance of these strategies in order to fine-tune them for larger future gains.

As AI gives fresh insights from examining historical data and trading patterns, an increasing number of brokers are combining algo trading with AI to improve their outcomes – to the point where some are wondering if robots may one day totally replace human traders.

APIs operate as code translators between computers, allowing them to perform increasingly complicated jobs at hyperkinetic speeds that are difficult for humans to match. Crypto exchanges would be unable to give customers with the depth and breadth of services they do if API trading were not available.

Algorithmic and AI trading strategies would be impossible to implement without APIs.