Over the last 20 years, technology has become an integral part of the world's financial markets. The contemporary trade of equity, futures and currency products is conducted almost exclusively online. As a result, the modern trader or investor is well advised to become as tech savvy as possible.
During that learning process, you may become familiar with an application programming interface (API), which is a device that facilitates the transfer of data via internet connectivity. In basic terms, an API acts as a bridge between software programs and programming languages. It receives requests and sends responses according to a predefined set of routines and protocols.
In the arena of active trading, APIs make engaging the markets remotely and instantly possible. They enable the freeflow of real-time data from the exchange or market to the broker and trader. By furnishing users with a full array of customisation options, APIs are ideal for individuals interested in building proprietary algorithms and systems, and integrating the functionality into a brokerage-supported trading platform.
The Rise Of API Trading
In the past, active traders were able to remain competitive without being directly connected to a market or exchange. Business was routinely conducted via telephone, with orders placed and filled in a timely manner at market. As the digital marketplace has risen to prominence, this mode of trade has fallen by the wayside. Interacting with the market often takes place in durations less than one second, turning minutes into lifetimes.
While exponentially more complex than the telephone, API functionality takes data transfer to the next level. The regular duties of market participants such as trade recognition, order placement and execution are streamlined for optimal efficiency. Through the use of an API, many undue latencies are eliminated, which promotes an atmosphere of speed.
Types Of API
APIs come in all shapes and sizes, each designed with the completion of a specific undertaking in mind. Online entertainment, communication and commercial functions are a few examples of processes made possible by APIs. The world of finance is certainly no exception and features myriad task-driven API constructs.
The following are several of the most commonly found types of APIs on the forex:
- REST: Representational State Transfer (REST) applications are designed to be simple and fast. Designed by Roy Fielding in 2000, REST is driven by six primary constraints governing its web-based function. It is easily adapted to most platforms and is ideal for creating custom trading applications, backtesting strategies and system building.
- FIX: The financial information exchange (FIX) API is the industry standard for the transmission of market-related data. The FIX Protocol language is designed specifically for trade-related communications. Introduced in 1992 by Robert Lamoureux and Chris Morstatt, FIX was created to facilitate the transfer of stock data between Fidelity Investments and Salomon Brothers. Today, it is used on a daily basis by institutional and retail market participants around the globe.
- JAVA: Dating to the early 1990s and Sun Microsystems, JAVA is one of the oldest and most versatile languages. It offers technicians a broad spectrum of options and is commonly used in graphical user interface (GUI) programming and database management. The JAVA API readily adapts the forex trading platform to the fluent use of JAVA language.
- ForexConnect: ForexConnect is a new API developed specifically for trade on the forex market. It is among the most flexible APIs available in the marketplace. In addition to enabling essential trade-related functionality, it is capable of furnishing users with options for business messaging and table applications.
It is important to remember that no matter how intricate an API's construction, each is derived from a basic set of operating protocols. It is within these parameters that the API executes the desired function(s).
The mechanism that drives the performance of an API is line-upon-line of programming code. It can be extremely complex and decipherable only by those with a background in computer programming. To remedy this issue, brokerages commonly offer third-party and developer applications to help integrate APIs into day-to-day trading operations.
APIs are found in every market around the globe, and the rise of algorithmic and automated trading practices have increased their demand among independent retail traders. Capabilities such as custom forex robot construction and direct market access (DMA) have attracted the attention of all types of market participants.
In order to service the growing demand, brokerages typically provide clients with a collection of API options. In addition, industry leading platforms such as Trading Station, MetaTrader 4 (MT4), NinjaTrader and ZuluTrade support APIs tailored to the specific needs of each trader or investor.
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…