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.
APIs In The Markets
APIs make it possible for different software programs and separate entities to communicate with one another. Subsequently, the world's financial markets depend on them to make certain that several essential functions are routinely completed:
- Data Streaming: Pricing data originating at a market or exchange is streamed live to brokers, traders and liquidity providers.
- Order Entry: Retail and institutional participants are able to place market, limit and stop orders on the market or exchange.
- Order Matching: Pairing buyers with sellers is the fundamental duty of a market or exchange. API functionality is used by market makers to complete this responsibility efficiently.
Getting started in API trading can be an intimidating task. A variety of choices is 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.
Identifying Goals And Objectives
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, a plan of attack regarding their implementation may be crafted.
APIs are used in a variety of ways to help traders 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:
- System Building: One of the most common uses of APIs is in the development of custom algorithmic trading systems.
- 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.
- 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.
- Trade Automation: APIs make adopting an exclusively hands-off approach to active trading possible. Concrete rules governing a strategy's execution may be coded and carried out at the market/exchange.
No matter how technical or complicated a 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, tried and true 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: Brokerages 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.
- 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 direct 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.
Being able to bridge the worlds of finance and technology has become an integral part of successful trading. Having a robust API in place can help bridge 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.
Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…