Getting Started With API Trading

As the marketplace has evolved, conducting trade has become more and more reliant on technology. Information is now exchanged at near-light speeds between brokers, traders and liquidity providers via remote internet connectivity. In recent years, a discipline known as API trading has exploded in popularity across the world of finance.

The functionality of an application programming interface (API) plays an important role in the seamless transfer of real-time data between market participants. Achieving proficiency in this area ensures that a trader, either institutional or retail, may engage the markets competently. Whether in the trade of cryptocurrency products such as Bitcoin, or in conventional futures, shares and forex, APIs are vital to day-to-day business.

APIs In The Markets

An automated programming interface (API) is a sort of "software bridge" between independent programs. The essential function of an API is to make it possible for different software programs to communicate with one another. Subsequently, the world's financial markets depend on API technology to make certain that several key functions are routinely completed:

  • Data Streaming: Pricing information originating at a market or exchange is streamed live to brokers, traders and liquidity providers. The real-time dissemination of market data is the backbone of remote cryptocurrency, shares, CFD and forex trading.
  • Order Entry: Retail and institutional participants are able to place market, limit and stop orders on the market or exchange. In addition, advanced systems and algo trading functionality become possible via the functionality afforded by APIs.
  • Order Matching: Pairing buyers with sellers is the fundamental duty of a market or exchange. APIs are used by market makers to complete this responsibility efficiently and in a timely fashion.

Getting started in API trading can be an intimidating task. A variety of choices are readily available online, and the industry jargon is deeply rooted in the world of computer programming. Making an informed decision often appears overly complex to individuals lacking a programming background.

Nonetheless, it's possible to select a suitable API without having a degree in computer science. Through completing a simple inventory of available resources, primary objectives and available options, an ideal API may be integrated into the trading operation.

If you're interested in implementing an API, the first step is to quantify your trade-related objectives. In doing so, you'll be able to select the best software suite for the job. It's also important to thoroughly review the API documentation of the chosen package.

API documentation is a reference material that contains all information needed to integrate the API. Typically, details on API functionality are illustrated by case studies, examples and tutorials. After you review the documentation, you should have a good idea of how to apply and maintain your chosen API's efficacy.

The Right API For You

The beauty of API trading is that you don't need to be a programming savant to take advantage of the many benefits afforded to users. Through identifying areas where the advanced features of API are most useful, you can craft a plan of attack regarding your implementation. Answering the following questions can shed some light on the features and functionality required from your ideal API:

  • What are my objectives? In order to take advantage of API technology, it's important to first understand the task at hand. Whether the API is being used to enhance market data flow, automate forex trading or add niche features is important to selecting the best software for the job.
  • How can the API be integrated with my platform? Understanding which programming language your trading platform employs is imperative to finding the right API.
  • Do I need the expertise of a competent programmer? Make no mistake, building a robust API from scratch is no easy task. If you don't have a background in coding or programming, it may be necessary to commission the services of a qualified third-party.

Four Common API Uses

Traders use APIs in a variety of ways to accomplish their goals. The flexibility of programming language and rapidly-advancing information systems technology assures trader creativity drives innovation. Below are four areas where APIs are commonly used to enhance performance in the arena of active trading:

1. System Building

One of the most common uses of APIs is in the development of custom algorithmic trading systems.

2. Latency Reduction

APIs are commonly implemented to reduce or eliminate undue trade-related latencies. A prominent example of this practice is the facilitating of direct market access (DMA) between trader and market/exchange. Other examples include enhancing audio/video capabilities and integrating ticker features to the trading platform.

3. Historical Data Analysis

Advanced market study is often dependent on the translation of historical data sets into a desired format. An API can accomplish this task, making backtesting and strategy optimisation possible. This functionality is especially valuable in scrutinising systems dependent upon technical analysis. Through the integration of robust APIs, one can routinely backtest trading strategies based on Stochastics, Bollinger Bands or moving average crossovers.

4. Trade Automation

APIs make adopting an exclusively hands-off approach to the markets possible. Concrete rules governing a strategy's execution may be coded and carried out at the market/exchange. The end product is a fully automated trading strategy that is capable of running without user intervention.

No matter how intertwined with technical analysis a strategy or trade-related objective may be, an API can be developed to aid in completion of the task. Whether one is looking for solutions to eliminate undue latencies or launch a custom study on a historical data set, odds are that an API can be built to streamline the process.

Selecting An API: Connecting To The Market

APIs are key components used in the technological infrastructures of markets around the globe. From the industry standard FIX, python wrapper, Java, to the more conventional REST, they are regularly implemented in the trade of financial instruments. Whether one is a participant in the equities, futures or forex markets, chances are an API is used to facilitate day-to-day operations.

An API acts as a bridge between software programs. As it pertains to trading, the API enables the broker, trader and market/exchange to interact with one another in real-time. Selecting the best one for the job at hand depends on several factors local to each market participant:

Platform

Regardless of the product being traded, a large number of software platforms are readily available. APIs enable broker-provided, custom and third-party applications to be readily adapted to data requirements.

Brokerage Options

Online, interactive brokers typically offer a collection of API choices ideal for connecting existing trader and broker software. FIX, REST and JAVA are among the most commonly supported. These APIs make the seamless execution of intraday, swing and day trading strategies possible.

Connectivity Model

The type of market/exchange connectivity is critical to the selection or development of a suitable API. Programming language formats will vary according to whether data is streamed directly from the market or first through an intermediary.

Implementing APIs into the trading operation provides flexibility to the trader. As long as the platform, brokerage and market/exchange are able to communicate without disruption, then nearly any trade-related objective may be achieved. From conducting a simple backtesting study to the execution of an advanced algorithmic trading strategy, an API can help achieve the desired goal.

Summary

Bridging the worlds of finance and technology is an integral part of successful trading. Having a robust API in place can help close almost any gap, promoting superior performance. Through ensuring optimal connectivity between the trader, broker and market/exchange, the trader then secures the best possible chance of staying competitive in the contemporary marketplace.

This article was last updated on 9th November 2021.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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